Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving Proposed Rule Change To Adopt New Initial and Continued Listing Standards To List Securities of Special Purpose Acquisition Companies, 27597-27601 [E8-10537]
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Federal Register / Vol. 73, No. 93 / Tuesday, May 13, 2008 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57785; File No. SR–NYSE–
2008–17]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Approving Proposed Rule Change To
Adopt New Initial and Continued
Listing Standards To List Securities of
Special Purpose Acquisition
Companies
May 6, 2008.
I. Introduction
On March 6, 2008, the New York
Stock Exchange LLC (‘‘NYSE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’),1 and Rule 19b–4
thereunder,2 a proposed rule change to
adopt new initial and continued listing
standards to list securities of special
purpose acquisition companies
(‘‘SPACs’’). The proposed rule change
was published in the Federal Register
on March 21, 2008.3 The Commission
received no comments on the proposal.
This order approves the proposed rule
change.
II. Description of the Proposal
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The Exchange has proposed to amend
its Listed Company Manual (‘‘Manual’’)
to adopt new initial and continued
listing standards to list securities of
SPACs. In its proposal, NYSE generally
described the structure of SPACs.4
NYSE notes that SPACs raise capital in
an initial public offering (‘‘IPO’’) to
enter into future undetermined business
combinations through mergers, capital
stock exchanges, asset acquisitions,
stock purchases, reorganizations or
other similar business combinations
with one or more operating businesses
or assets. In the IPO, SPACs typically
sell units consisting of one share of
common stock and one or more
warrants (or a fraction of a warrant) to
purchase common stock, that are
separable at some point after the IPO.
Further, NYSE notes that the
management of the SPAC generally
receives a percentage of the equity and
may be required to purchase additional
shares in a private placement at the time
of the IPO. Because of the structure of
SPACs, they do not have any prior
1 15
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 57499
(March 14, 2008), 73 FR 15246.
4 See id.
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financial history, unlike operating
companies.
The Exchange proposes to adopt new
Section 102.06 of the Manual for the
initial listing standards for securities of
SPACs. NYSE’s existing listing rules
require all listed companies to have
some operating history prior to listing.
The proposed standards, as described
below, would allow the listing of
securities of SPACs with no prior
operating history, a departure from
NYSE’s current listing requirements.
The Exchange also proposes to amend
the Manual to require that: (1) Any
equity security listing on the Exchange
must have a closing price or, if listing
in connection with an IPO, an IPO price
per share of at least $4 at the time of
initial listing; and (2) convertible debt
issuances listed on the Exchange must
have an aggregate market value or
principal amount of no less than
$10,000,000.
A. Initial Listing Standards for
Securities of SPACs
As proposed, SPACs would have to
meet the same distribution criteria as all
other IPOs–400 holders of round lots
and 1,100,000 publicly held shares.5 In
addition, SPACs would have to meet all
of the Exchange’s corporate governance
requirements applicable to operating
companies. Under the proposal, SPACs
would also need to demonstrate an
aggregate market value of $250,000,000
and a market value of publicly held
shares of $200,000,000, as well as meet
the new $4 price requirement applicable
to all equity securities listing on the
Exchange.6 Further, SPACs would be
required under the proposed rules to
keep at least 90% of the proceeds,
together with the proceeds of any other
concurrent sales of the SPACs’ equity
securities, in a trust account. An
independent custodian would be
required to control the trust account
until consummation of a business
combination in the form of a merger,
capital stock exchange, asset
acquisition, stock purchase,
reorganization, or similar business
combination, with one or more
operating businesses or assets with a fair
market value equal to at least 80% of the
net assets in the trust (minus working
5 See
Manual Section 102.01A.
would exclude shares held by directors,
officers, or their immediate families and other
concentrated holdings of 10% or more in
calculating the number of publicly held shares. For
SPACs that list securities at the time of their IPOs,
if necessary, the Exchange would rely on a written
commitment from the underwriter to represent the
anticipated value of the offering in order to
determine compliance.
6 NYSE
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27597
capital and deferred underwriting
discount) (‘‘Business Combination’’).
The proposal would also require that
under the terms of the SPAC’s
constitutive documents or by contract,
any SPAC deemed suitable for listing
would be subject to the following
minimum requirements.
• The Business Combination must be
approved by a majority vote of the votes
cast by public shareholders at a duly
held shareholders meeting.
• Each public shareholder voting
against the Business Combination will
have the right (‘‘Conversion Right’’) to
convert its shares of common stock into
a pro rata share of the aggregate amount
then on deposit in the trust account (net
of taxes payable and amounts disbursed
to management for working capital
purposes), provided that the Business
Combination is approved and
consummated. SPACs may establish a
limit (set no lower than 10% of the
shares sold in the IPO) as to the
maximum number of shares with
respect to which any public
shareholder, together with any affiliate
of such shareholder or any person with
whom such shareholder is acting as a
‘‘group’’ (as such term is used in
Sections 13(d) 7 and 14(d) 8 of the Act),
may exercise Conversion Rights.9
• The SPAC cannot consummate its
Business Combination if public
shareholders owning in excess of a
threshold amount (to be set no higher
than 40% by the SPAC) of the shares of
common stock issued in the IPO
exercise their Conversion Rights in
connection with such Business
Combination.
• The SPAC would be liquidated if a
Business Combination has not been
consummated within a specified time
period, not to exceed three years. Under
the proposal, NYSE must promptly
commence delisting procedures with
respect to the securities of any SPAC
that fails to consummate a Business
Combination within (i) the time period
specified by its constitutive documents
or by contract, or (ii) three years,
whichever is shorter.
• The SPAC’s founding shareholders
must waive their rights to participate in
any liquidation distribution with
respect to all shares of common stock
owned by each of them prior to the IPO
or purchased in any private placement
occurring in conjunction with the IPO,
including the common stock underlying
any founders’ warrants. In addition, the
7 15
U.S.C. 78m(d).
U.S.C. 78n(d).
9 For example, a SPAC which sells 10,000,000
shares in its IPO could limit the exercise of
Conversion Rights by any one holder to 10% of that
amount, or a maximum of 1,000,000 shares.
8 15
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underwriters of the IPO must agree to
waive their rights to any deferred
underwriting discount deposited in the
trust account in the event the SPAC
liquidates prior to the completion of a
Business Combination.10
If the securities of the SPAC are listed
as units, the components of the units
(other than common stock) would be
required to meet the applicable initial
listing standards for the security types
represented by the components.11
Under the proposal, the Exchange has
discretion to consider these listings on
a case-by-case basis, and would
consider the following factors in its
decision:
• The experience and track record of
management;
• the amount of time permitted for
the completion of the Business
Combination prior to the mandatory
dissolution of the SPAC;
• the nature and extent of
management compensation;
• the extent of management’s equity
ownership in the SPAC and any
restrictions on management’s ability to
sell SPAC stock;
• the percentage of the contents of the
trust account that must be represented
by the fair market value of the Business
Combination;
• the percentage of voting publicly
held shares whose votes are needed to
approve the Business Combination;
• the percentage of the proceeds of
sales of the SPAC’s securities that is
placed in the trust account; and
• such other factors as the Exchange
believes are consistent with the goals of
investor protection and the public
interest.
B. Continued Listing Standard of SPACs
The Exchange also proposes to amend
Section 802.01B of the Manual for the
continued listing standards for
securities of SPACs.
1. Prior to a Business Combination
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Prior to the consummation of a
Business Combination, NYSE would
promptly initiate suspension and
delisting procedures if:
• The SPAC’s average aggregate
global market capitalization is below
$125,000,000 or the average aggregate
10 In the event of liquidation, the pro rata share
of the trust account to be paid to the holder of each
publicly held share would be calculated in
accordance with the law of the SPAC’s state of
incorporation. However, the actual amount paid to
the public shareholders could vary depending on a
variety of factors as disclosed in the IPO prospectus,
such as liquidation expenses, or indemnification
obligations.
11 For example, a component that is a warrant
will be subject to the initial listing standards for
warrants set forth in Section 703.12 of the Manual.
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global market capitalization attributable
to its publicly held shares is below
$100,000,000, in each case over 30
consecutive trading days; 12
• the SPAC’s securities initially listed
(either common stock or units) fall
below the following distribution
criteria:
(1) The number of total
stockholders 13 is less than 400; or
(2) the number of total stockholders 14
is less than 1,200 and average monthly
trading volume is less than 100,000
shares (for the most recent 12 months);
or
(3) the number of publicly held
shares 15 is less than 600,000;16 or
• the SPAC fails to consummate a
Business Combination within the time
period specified by its constitutive
documents or required by contract, or
three years, whichever is shorter.
The continued listing standards set
forth in Sections 801 (‘‘Policy’’),
802.01C (‘‘Price Criteria for Capital or
Common Stock’’), 802.01D (‘‘Other
Criteria’’) and 802.01E (‘‘SEC Annual
12 The Exchange would notify the SPAC if the
average aggregate global market capitalization falls
below $150,000,000 or the average aggregate global
market capitalization of publicly held shares falls
below $125,000,000, and would advise the SPAC of
the delisting standard. A SPAC would not be
eligible to follow the procedures outlined in
Sections 802.02 and 802.03 of the Manual with
respect to this criterion (allowing the issuer to
establish a plan to cure any deficiencies), and the
SPAC would be subject to the delisting procedures
in Section 804 of the Manual.
13 The number of beneficial holders of stock held
in the name of Exchange member organizations will
be considered in addition to holders of record.
14 See id.
15 Shares held by directors, officers, or their
immediate families and other concentrated holdings
of 10% or more are excluded in calculating the
number of publicly held shares.
16 If the unit of trading is less than 100 shares,
the requirement relating to the number of publicly
held shares would be reduced proportionately.
Securities of SPACs trading as a unit would be
subject to suspension and delisting if any of the
component parts does not meet the applicable
listing standards. If one or more of the components
is otherwise qualified for listing, such component(s)
may remain listed. To determine whether an
individual component satisfies the applicable
distribution criteria, the units that are intact and
freely separable into their component parts would
be counted toward the total numbers required for
continued listing of the component. If a component
is a warrant, it would be subject to the continued
listing standards for warrants set forth in Section
802.01D of the Manual, including a continued
distribution requirement of 100 holders.
Nevertheless, under the proposal NYSE has broad
discretion to consider the delisting of any
individual component or unit if the Exchange
believes the extent of public distribution or the
aggregate market value of such component or unit
has become so reduced as to make continued listing
on the Exchange inadvisable. The Exchange would
consider the trading characteristics of such
component or unit and whether it would be in the
public interest for trading to continue, in reviewing
the advisability of the continued listing of an
individual component or unit.
PO 00000
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Report Timely Filing Criteria’’) of the
Manual would also apply to SPACs, in
the same way those provisions apply to
other equity securities.
2. At the Time of the Business
Combination
After shareholders approve a Business
Combination, but prior to its
consummation, the Exchange would
consider whether the continued listing
of the securities of the SPAC, after the
consummation of the Business
Combination, would be in the best
interests of the Exchange and the public
interest. NYSE would have the
discretion to delist securities of the
SPAC prior to consummation of the
Business Combination. A SPAC would
not be eligible to follow the procedures
to cure the deficiencies outlined in
Sections 802.02 and 802.03 of the
Manual, and would be subject to
delisting procedures as set forth in
Section 804 of the Manual.
3. Continued Listing Standard
Applicable to SPACs After Business
Combination
After consummation of a Business
Combination, the SPAC would be
subject to Sections 801 and 802.0117 of
the Manual in their entirety and would
be considered to be below compliance if
it does not meet the continued listing
standards applicable to operating
companies listed under the Exchange’s
Earnings Test in Section 802.01B of the
Manual—if average global market
capitalization over a consecutive 30-day
period is less than $75,000,000, and
stockholders’ equity is less than
$75,000,000.18
4. Application of ‘‘Back Door Listing’’
Rule to SPACs Upon Consummation of
Business Combination
When a SPAC consummates a
Business Combination, the Exchange
would consider whether the Business
Combination gives rise to a ‘‘back door
17 Section 802.01 of the Manual contains
minimum holder, trading volume, and/or number of
publicly held shares requirements.
18 Section 802.01B of the Manual establishes
separate continued listing standards for companies
that qualified to list under each of the Exchange’s
four separate initial listing standards for operating
companies: (1) The Earnings Test; (2) the Valuation/
Revenue with Cash Flow Test; (3) the Pure
Valuation/Revenue Test; and (4) the Affiliated
Company Test. NYSE noted that since it cannot
predict the standard that would be most appropriate
to a SPAC after a Business Combination, the
Exchange would apply the Earnings Test to all postBusiness Combination SPACs. In the event that the
post-Business Combination SPAC could not meet
the Earnings Test continued listing standards,
under Section 802.02 of the Manual, if the SPAC
could qualify under another original listing
standard, its securities would remain listed on
NYSE.
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listing’’ as described in Section
703.08(E) of the Manual (i.e., whether
NYSE believes the transaction
constitutes an acquisition of the SPAC
by an unlisted company). Under this
provision, when a transaction is deemed
a backdoor listing, Section 703.08(E) of
the Manual would require the resulting
company to meet the standards for
original listing. If the resulting company
could not qualify for original listing,
NYSE will refuse to list additional
shares of the listed SPAC for the
transaction and the SPAC would be
delisted.19
C. Minimum Closing Price Requirement
for New Listings
The Exchange also proposes to adopt
a requirement that any equity security
listing on the Exchange must have a
closing price or, if listing in connection
with an IPO, an IPO price per share of
at least $4 at the time of initial listing.20
D. Minimum Value of New Listings of
Convertible Debt
The Exchange also proposes to adopt
a requirement that any convertible debt
issuance listed on the Exchange must at
the time of listing have an aggregate
market value or principal amount of no
less than $10,000,000.21
III. Discussion
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The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange and, in particular, the
requirements of Section 6(b) of the Act
and the rules and regulations
thereunder. Specifically, the
Commission finds that the proposal is
consistent with Section 6(b)(5) of the
Act,22 which requires that an exchange
have rules designed, among other
things, to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, to protect
investors and the public interest, and to
not permit unfair discrimination
19 Section 703.08(E) of the Manual also states: ‘‘In
applying the above policy, consideration will be
given to all factors including changes in ownership
of the listed company, changes in management,
whether the size of the company being ‘acquired’
is larger than the listed company and whether the
two businesses are related on a horizontal or a
vertical basis. All circumstances will be considered
collectively and weight may be given to
compensating factors.’’
20 See infra note 30.
21 See infra note 31.
22 15 U.S.C. 78f(b)(5).
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between customers, issuers, brokers, or
dealers.23
The development and enforcement of
adequate standards governing the initial
and continued listing of securities on an
exchange is an activity of critical
importance to financial markets and the
investing public. Listing standards,
among other things, serve as a means for
an exchange to screen issuers and to
provide listed status only to bona fide
companies that have or, in the case of
an IPO, will have sufficient public float,
investor base, and trading interest to
provide the depth and liquidity
necessary to promote fair and orderly
markets. Adequate standards are
especially important given the
expectations of investors regarding
exchange trading and the imprimatur of
listing on a particular market. Once a
security has been approved for initial
listing, maintenance criteria allow an
exchange to monitor the status and
trading characteristics of that issue to
ensure that it continues to meet the
exchange’s standards for market depth
and liquidity so that fair and orderly
markets can be maintained.
As stated at the outset, SPACs are
essentially shell companies that raise
capital in IPOs, with the purpose of
purchasing operating companies or
assets within a certain time frame. The
proceeds of the IPOs are placed in an
escrow account during this period.
SPACs usually require a majority of
shareholders to approve any Business
Combination. If shareholders do not
approve a deal within the relevant time
frame, shareholders have the option to
demand their investment be returned
from the escrow account. Management
of the SPAC typically invests its own
money in the SPAC—generally 2% to
4%—which generally is forfeited if a
Business Combination is not
consummated. If a Business
Combination is consummated,
management typically receives up to a
20% interest in the resulting company.
The securities sold in the IPO generally
consist of a unit made up of one share
of common stock and a warrant (or
fraction of a warrant) to purchase
common stock. The common stock and
warrants may be traded separately after
the IPO.
As discussed in more detail below,
the proposed standards would permit
NYSE to list securities of SPACs that
meet specified criteria, including market
value, distribution, and price
requirements, which should help to
23 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rules’ impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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27599
ensure that the securities have sufficient
public float, investor base, and liquidity
to promote fair and orderly markets. In
addition, SPACs would have to meet
other investor protection criteria, such
as the escrow account requirement,
public shareholder approval
requirement, public shareholder
redemption rights, and public
shareholder liquidation preferences,
which should further the ability of
investors to protect and monitor their
investment pending a Business
Combination. Finally, SPACs that list
securities on NYSE would have to
comply with all NYSE corporate
governance requirements and
distribution criteria applicable to
operating companies.
A. Initial Listing Standards for SPACs
The Commission believes that the
Exchange’s proposed initial listing
standards to list SPAC securities are
consistent with the requirements of the
Act, including the protection of
investors and the promotion of fair and
orderly markets. SPACs that list
securities on the NYSE would need to
deposit at least 90% of the IPO proceeds
in a trust account controlled by an
independent custodian. Under the
listing standards, the proceeds would be
under control of the independent
custodian until consummation of a
Business Combination with one or more
operating companies that, among other
things, have a fair market value equal to
at least 80% of the net assets held in
trust.24 Public shareholders must vote to
approve the Business Combination, and
the listing standards contain, for those
public shareholders voting against the
Business Combination, certain
Conversion Rights for the return of their
initial investment on a pro rata basis
(net of certain expenses). Some of the
NYSE’s proposed requirements, such as
the Conversion Rights, are similar in
some respects to the investor protection
measures contained in Rule 419 under
the Securities Act of 1933 with respect
to blank check companies.25 SPACs that
list securities on NYSE would also need
to demonstrate sufficient market value
and liquidity of the securities. The
Commission believes that these
standards should help to ensure that a
sufficient market, with adequate depth
24 This amount is net of amounts disbursed to
management for working capital purposes and
excludes the amount of any deferred underwriting
discount held in trust.
25 See 17 CFR 230.419. Rule 419 applies to blank
check companies issuing penny stock as defined
under Rule 3a51–1(a)(2) of the Act. See 17 CFR
240.3a51–1(a)(2). Rule 419 is not applicable to
securities traded on the NYSE.
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and liquidity, would exist for listed
SPAC securities.
Further, the proposed initial listing
standards require additional protections
for public shareholders. The
Commission believes that these
protections, such as requiring a majority
of public shareholders to approve a
Business Combination, the right of
public shareholders voting against a
Business Combination to exercise
Conversion Rights to redeem their
investment, a prohibition on the
consummation of a Business
Combination if a certain percentage of
public shares are voted against a
Business Combination, and the right of
shareholders to receive liquidation
rights if no Business Combination is
consummated within a specified period
of time not to exceed three years, would
help to ensure that public shareholders
approve management’s decision with
respect to a Business Combination, and
have remedies if they disagree.
Moreover, the proposed initial listing
standards impose requirements on
management of the SPAC. First,
management of a SPAC would have to
consummate a Business Combination
within three years or less, or else
investors would be entitled to
liquidation rights, and NYSE would
delist the securities of the SPAC.
Second, the founding shareholders of
the SPAC (including but not limited to
management) must waive their
liquidation rights. Third, NYSE will
consider the management’s experience,
record, compensation, equity
ownership, and restriction on sales,
when considering whether to list the
securities.26 The Commission believes
that these requirements should help to
ensure that management of the SPAC,
among other things, is incented to
actively seek out a Business
Combination and has requisite
experience.
The Commission believes that these
safeguards should help to ensure that
SPACs that list securities on NYSE will
have taken certain additional steps to
address investor protection and other
matters. In this regard, the Commission
expects NYSE to thoroughly review
potential listings of SPAC securities to
ensure that its listing standards have
been met. Based on the foregoing, the
Commission finds the proposed initial
listing standards are consistent with the
requirements of the Act.
26 Under its rules, NYSE has the discretion to
consider the listing of the securities of SPACS on
a case-by-case basis. The NYSE stated in its filing
that it will not necessarily list the securities of
every SPAC that meets the proposed minimum
listing requirements.
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B. Continued Listing Standard of SPACs
The Commission believes that the
Exchange’s proposed continued listing
standards for SPACs are consistent with
the requirements of the Act and the
protection of investors. Due to its
nature, a SPAC’s financial condition
will vary depending on where it is in
the acquisition process. For example,
immediately after listing, a SPAC would
essentially be a shell company with
funds to seek an acquisition of an
operating business. Once the SPAC has
announced a proposed acquisition, the
SPAC would be in the midst of a
potential Business Combination.
Finally, if the Business Combination is
consummated, the SPAC would begin
operating a new business. NYSE is
proposing continued listing standards
for all three situations.
Prior to a Business Combination, a
SPAC would need to maintain average
aggregate global market capitalization of
at least $125,000,000 or average
aggregate global market capitalization of
publicly held shares of at least
$100,000,000, in each case over 30
consecutive trading days. NYSE would
delist securities of SPACs that fall below
such requirements immediately and the
SPACs could not use the time period to
cure deficiencies afforded to other
operating companies.27 In addition, the
continued listing standards would
require SPACs to maintain certain
distribution criteria and would require a
Business Combination within three
years or less.
Immediately prior to consummation
of a Business Combination, NYSE
would consider whether listing of the
combined entity would be in the best
interest of the Exchange and the public
interest. Under this provision, NYSE
would have broad discretion to delist
the securities of the SPAC prior to the
consummation of a Business
Combination that would not be in the
interest of investors or the public. In
addition, NYSE would consider whether
a Business Combination could result in
a back door listing, and if so, would
delist securities of the SPAC. The
Commission believes that this
requirement will help to ensure that
companies that would not otherwise
qualify for original listing could not list
on NYSE through a backdoor listing in
violation of Section 703.08 of the
Manual.
After consummation of a Business
Combination, NYSE would require the
SPAC to meet the continued listing
distribution criteria for common stock 28
and the continued listing Earnings Test
27 See
28 See
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Section 802.01A of the Manual.
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numerical criteria.29 For continued
listing, the Earnings Test requires
average global market capitalization
over a consecutive 30 trading-day
period of at least $75,000,000 and total
stockholders’ equity of at least
$75,000,000. After consummation of a
Business Combination, SPACs would be
treated by NYSE as other operating
companies.
Taken as a whole, the Commission
believes that the proposed continued
listing standards are consistent with the
requirements of the Act. SPACs would
be subject to different continued listing
standards, depending on whether a
Business Combination has been
consummated, that are designed to,
among other things, protect investors
and promote fair and orderly markets.
The Commission expects NYSE to
actively monitor compliance by listed
SPACs with these listing standards.
C. Minimum Closing Price Requirement
for New Listings
The Commission notes that the
proposed change to require a company
to have a closing price or an IPO price
of at least $4 per share meets the criteria
from the definition of penny stock
contained in Rule 3a51–1 under the
Act.30 The Commission finds that this
proposal is consistent with the
requirements of the Act.
D. Minimum Value of New Listings of
Convertible Debt
The Commission notes that the
proposed change to require convertible
debt issue to have an aggregate market
value or principal amount of no less
than $10,000,000 meets the criteria from
the definition of penny stock contained
29 See Section 802.01B of the Manual. See also
note 18 supra.
30 See 17 CFR 240.3a51–1(a)(2)(i)(C). The
Commission notes that the NYSE is adopting a
minimum bid price so that securities listed on the
NYSE meet the exception from the definition of
penny stock in Rule 3a51–1(a)(2). Securities
currently listed on the NYSE are included in the
‘‘grandfather’’ exception to the definition of penny
stock in Rule 3a51–1(a)(1) for securities registered
or listed ‘‘on a national securities exchange that has
been continuously registered as a national securities
exchange since April 20, 1992 * * * and * * * has
maintained quantitative listing standards that are
substantially similar to or stricter than those listing
standards that were in place on that exchange on
January 8, 2004.’’ By adopting a listing standard for
SPACs, NYSE’s listing standards would no longer
be included in the ‘‘grandfather’’ exception.
Further, the Commission notes that for existing
companies, other national securities exchanges
generally require those companies to meet the
minimum bid price for certain consecutive trading
days prior to listing. See, e.g., Nasdaq Rule
4310(c)(2) and NYSE Arca Rule 5.2(c)(ii). The
Commission still generally believes that for
companies transferring from another marketplace,
to assess suitability for trading, it is important and
useful to ensure the bid test is sustainable based on
some period of time prior to listing.
E:\FR\FM\13MYN1.SGM
13MYN1
Federal Register / Vol. 73, No. 93 / Tuesday, May 13, 2008 / Notices
in Rule 3a51–1 under the Act.31 The
Commission finds that this proposal is
consistent with the requirements of the
Act.
E. Conclusion
Based on the above, the Commission
believes the proposed rule change is
reasonable and should provide for the
listing of SPACs with baseline investor
protection and other standards.32 The
Commission believes that, as discussed
above, NYSE has developed sufficient
standards to allow the listing of SPACs
on the NYSE, consistent with the
requirements set forth under the Act
and in particular, Section 6(b)(5).33
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,34 that the
proposed rule change (SR–NYSE–2008–
17) is hereby approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Nancy M. Morris,
Secretary.
[FR Doc. E8–10537 Filed 5–12–08; 8:45 am]
rwilkins on PROD1PC63 with NOTICES
BILLING CODE 8010–01–P
31 See 17 CFR 240.3a51–1(a)(2)(i)(F). The
Commission notes that the NYSE is adopting a
minimum value for convertible debt so that
securities listed on the NYSE meet the exception
from the definition of penny stock in Rule 3a51–
1(a)(2). As noted in footnote 30, supra, securities
listed on the NYSE are included in the
‘‘grandfather’’ exception to the definition of penny
stock in Rule 3a51–1(a)(1) for securities registered
or listed ‘‘on a national securities exchange that has
been continuously registered as a national securities
exchange since April 20, 1992...and...has
maintained quantitative listing standards that are
substantially similar to or stricter than those listing
standards that were in place on that exchange on
January 8, 2004.’’ By adopting a listing standard for
SPACs, NYSE’s listing standards would no longer
be included in the ‘‘grandfather’’ exception.
32 The Commission notes that under the proposal,
the Exchange has the discretion to consider initial
listing of securities of SPACs that otherwise meet
NYSE’s listing standards, on a case-by-case basis,
and the Exchange has broad discretion to delist the
securities of SPACs at the time of the Business
Combination if the Exchange believes it is not in the
best interest of the Exchange and the public
interest.
33 15 U.S.C. 78s(b)(5). The staff of the Division of
Trading and Markets would not recommend
enforcement action to the Commission under Rules
15g–2 through 15g–9 under the Act if broker-dealers
treat equity securities listed pursuant to the initial
listing requirements set forth in the Manual as
meeting the exclusion from the definition of penny
stock contained in Rule 3a51–1 under the Act
pursuant to paragraph (a)(2) thereof.
34 15 U.S.C. 78s(b)(2).
35 17 CFR 200.30–3(a)(12).
VerDate Aug<31>2005
16:14 May 12, 2008
Jkt 214001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57792; File No. SR–NYSE–
2008–36]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change to Expand the
Reserve Order Pilot Program Currently
Operating in 100 Securities Traded on
the Exchange To Include All Equity
Securities Traded on the Exchange
May 7, 2008.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’)1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 6,
2008, the New York Stock Exchange
LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been substantially prepared by the
Exchange. The Exchange has designated
the proposed rule change as a ‘‘noncontroversial’’ rule change pursuant to
Section 19(b)(3)(A) of the Act 3 and Rule
19b–4(f)(6) thereunder,4 which renders
the proposed rule change effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is proposing to expand
the Reserve Order pilot program
currently operating in 100 securities
traded on the NYSE 5 to include all
equity securities traded on the
Exchange. The text of the proposed rule
change is available at https://
www.nyse.com, the Exchange, and the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NYSE 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. NYSE has prepared
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
5 See Securities Exchange Act Release No. 57688
(April 18, 2008), 73 FR 22194 (April 24, 2008) (SR–
NYSE–2008–30) (‘‘Reserve Order Notice’’).
2 17
PO 00000
Frm 00112
Fmt 4703
Sfmt 4703
27601
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
Through this proposed rule change,
the Exchange seeks to expand the
Reserve Order pilot program currently
operating pursuant to Exchange Rule 13.
On April 23, 2008, the Exchange
implemented a new order type that
allows off-Floor participants the ability
to enter reserve interest into Exchange
systems (‘‘Reserve Order’’).6
The Reserve Order is a limit order for
which a portion of the order is to be
displayed and a portion of the order, at
the same price, is not displayed (i.e., is
held in ‘‘reserve’’).7 Market participants
that choose to enter Reserve Orders
must enter specified order information
in relation to the price and size of the
order and the amount to be displayed.
The displayed portion of a Reserve
Order is published in NYSE
OpenBook 8 and is available to the
specialist on the Floor. Both the
displayed and the non-displayed
portion are available for automatic
execution against incoming contra-side
orders. Displayed and non-displayed
interest of Reserve Orders is available
for manual executions as well.9
To afford the Exchange and its
customers the ability to gain systemic
experience with the new Reserve Order
type, the Exchange implemented the
amendment to Exchange Rule 13
allowing off-Floor participants to enter
Reserve Orders on a pilot basis. The
pilot currently operates in 100 securities
traded on the Floor of the Exchange.
6 See
id.
Exchange represents that this functionality
is equivalent to the functionality currently available
to Floor brokers and specialists with respect to
entry of reserve interest. In order for Floor brokers’
reserve interest not to be visible by the specialists,
a Floor broker must designate his or her reserve
interest as ‘‘Do Not Display’’ interest. Reserve
Orders in contrast are never shown to the specialist
except when included in aggregate quantities for
manual executions.
8 NYSE OpenBook provides aggregate limit
order volume that has been entered on the
Exchange at price points for all NYSE-traded
securities.
9 See Reserve Order Notice, supra note 5, for a
detailed description of Reserve Orders and their
functionality; see also NYSE Information Memo No.
08–24 (April 22, 2008) (both documents are
available on the Exchange’s Web site at https://
www.nyse.com). The Exchange will issue a revised
Information Memo to the Floor providing notice of
the expansion of the Reserve Order pilot to include
all equity securities traded on the Exchange.
7 The
E:\FR\FM\13MYN1.SGM
13MYN1
]]>Agencies
[Federal Register Volume 73, Number 93 (Tuesday, May 13, 2008)]
[Notices]
[Pages 27597-27601]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-10537]
[[Page 27597]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57785; File No. SR-NYSE-2008-17]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Approving Proposed Rule Change To Adopt New Initial and Continued
Listing Standards To List Securities of Special Purpose Acquisition
Companies
May 6, 2008.
I. Introduction
On March 6, 2008, the New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to adopt new initial and continued listing
standards to list securities of special purpose acquisition companies
(``SPACs''). The proposed rule change was published in the Federal
Register on March 21, 2008.\3\ The Commission received no comments on
the proposal. This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 57499 (March 14,
2008), 73 FR 15246.
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange has proposed to amend its Listed Company Manual
(``Manual'') to adopt new initial and continued listing standards to
list securities of SPACs. In its proposal, NYSE generally described the
structure of SPACs.\4\ NYSE notes that SPACs raise capital in an
initial public offering (``IPO'') to enter into future undetermined
business combinations through mergers, capital stock exchanges, asset
acquisitions, stock purchases, reorganizations or other similar
business combinations with one or more operating businesses or assets.
In the IPO, SPACs typically sell units consisting of one share of
common stock and one or more warrants (or a fraction of a warrant) to
purchase common stock, that are separable at some point after the IPO.
Further, NYSE notes that the management of the SPAC generally receives
a percentage of the equity and may be required to purchase additional
shares in a private placement at the time of the IPO. Because of the
structure of SPACs, they do not have any prior financial history,
unlike operating companies.
---------------------------------------------------------------------------
\4\ See id.
---------------------------------------------------------------------------
The Exchange proposes to adopt new Section 102.06 of the Manual for
the initial listing standards for securities of SPACs. NYSE's existing
listing rules require all listed companies to have some operating
history prior to listing. The proposed standards, as described below,
would allow the listing of securities of SPACs with no prior operating
history, a departure from NYSE's current listing requirements.
The Exchange also proposes to amend the Manual to require that: (1)
Any equity security listing on the Exchange must have a closing price
or, if listing in connection with an IPO, an IPO price per share of at
least $4 at the time of initial listing; and (2) convertible debt
issuances listed on the Exchange must have an aggregate market value or
principal amount of no less than $10,000,000.
A. Initial Listing Standards for Securities of SPACs
As proposed, SPACs would have to meet the same distribution
criteria as all other IPOs-400 holders of round lots and 1,100,000
publicly held shares.\5\ In addition, SPACs would have to meet all of
the Exchange's corporate governance requirements applicable to
operating companies. Under the proposal, SPACs would also need to
demonstrate an aggregate market value of $250,000,000 and a market
value of publicly held shares of $200,000,000, as well as meet the new
$4 price requirement applicable to all equity securities listing on the
Exchange.\6\ Further, SPACs would be required under the proposed rules
to keep at least 90% of the proceeds, together with the proceeds of any
other concurrent sales of the SPACs' equity securities, in a trust
account. An independent custodian would be required to control the
trust account until consummation of a business combination in the form
of a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization, or similar business combination, with one or more
operating businesses or assets with a fair market value equal to at
least 80% of the net assets in the trust (minus working capital and
deferred underwriting discount) (``Business Combination'').
---------------------------------------------------------------------------
\5\ See Manual Section 102.01A.
\6\ NYSE would exclude shares held by directors, officers, or
their immediate families and other concentrated holdings of 10% or
more in calculating the number of publicly held shares. For SPACs
that list securities at the time of their IPOs, if necessary, the
Exchange would rely on a written commitment from the underwriter to
represent the anticipated value of the offering in order to
determine compliance.
---------------------------------------------------------------------------
The proposal would also require that under the terms of the SPAC's
constitutive documents or by contract, any SPAC deemed suitable for
listing would be subject to the following minimum requirements.
The Business Combination must be approved by a majority
vote of the votes cast by public shareholders at a duly held
shareholders meeting.
Each public shareholder voting against the Business
Combination will have the right (``Conversion Right'') to convert its
shares of common stock into a pro rata share of the aggregate amount
then on deposit in the trust account (net of taxes payable and amounts
disbursed to management for working capital purposes), provided that
the Business Combination is approved and consummated. SPACs may
establish a limit (set no lower than 10% of the shares sold in the IPO)
as to the maximum number of shares with respect to which any public
shareholder, together with any affiliate of such shareholder or any
person with whom such shareholder is acting as a ``group'' (as such
term is used in Sections 13(d) \7\ and 14(d) \8\ of the Act), may
exercise Conversion Rights.\9\
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78m(d).
\8\ 15 U.S.C. 78n(d).
\9\ For example, a SPAC which sells 10,000,000 shares in its IPO
could limit the exercise of Conversion Rights by any one holder to
10% of that amount, or a maximum of 1,000,000 shares.
---------------------------------------------------------------------------
The SPAC cannot consummate its Business Combination if
public shareholders owning in excess of a threshold amount (to be set
no higher than 40% by the SPAC) of the shares of common stock issued in
the IPO exercise their Conversion Rights in connection with such
Business Combination.
The SPAC would be liquidated if a Business Combination has
not been consummated within a specified time period, not to exceed
three years. Under the proposal, NYSE must promptly commence delisting
procedures with respect to the securities of any SPAC that fails to
consummate a Business Combination within (i) the time period specified
by its constitutive documents or by contract, or (ii) three years,
whichever is shorter.
The SPAC's founding shareholders must waive their rights
to participate in any liquidation distribution with respect to all
shares of common stock owned by each of them prior to the IPO or
purchased in any private placement occurring in conjunction with the
IPO, including the common stock underlying any founders' warrants. In
addition, the
[[Page 27598]]
underwriters of the IPO must agree to waive their rights to any
deferred underwriting discount deposited in the trust account in the
event the SPAC liquidates prior to the completion of a Business
Combination.\10\
---------------------------------------------------------------------------
\10\ In the event of liquidation, the pro rata share of the
trust account to be paid to the holder of each publicly held share
would be calculated in accordance with the law of the SPAC's state
of incorporation. However, the actual amount paid to the public
shareholders could vary depending on a variety of factors as
disclosed in the IPO prospectus, such as liquidation expenses, or
indemnification obligations.
---------------------------------------------------------------------------
If the securities of the SPAC are listed as units, the components
of the units (other than common stock) would be required to meet the
applicable initial listing standards for the security types represented
by the components.\11\
---------------------------------------------------------------------------
\11\ For example, a component that is a warrant will be subject
to the initial listing standards for warrants set forth in Section
703.12 of the Manual.
---------------------------------------------------------------------------
Under the proposal, the Exchange has discretion to consider these
listings on a case-by-case basis, and would consider the following
factors in its decision:
The experience and track record of management;
the amount of time permitted for the completion of the
Business Combination prior to the mandatory dissolution of the SPAC;
the nature and extent of management compensation;
the extent of management's equity ownership in the SPAC
and any restrictions on management's ability to sell SPAC stock;
the percentage of the contents of the trust account that
must be represented by the fair market value of the Business
Combination;
the percentage of voting publicly held shares whose votes
are needed to approve the Business Combination;
the percentage of the proceeds of sales of the SPAC's
securities that is placed in the trust account; and
such other factors as the Exchange believes are consistent
with the goals of investor protection and the public interest.
B. Continued Listing Standard of SPACs
The Exchange also proposes to amend Section 802.01B of the Manual
for the continued listing standards for securities of SPACs.
1. Prior to a Business Combination
Prior to the consummation of a Business Combination, NYSE would
promptly initiate suspension and delisting procedures if:
The SPAC's average aggregate global market capitalization
is below $125,000,000 or the average aggregate global market
capitalization attributable to its publicly held shares is below
$100,000,000, in each case over 30 consecutive trading days; \12\
---------------------------------------------------------------------------
\12\ The Exchange would notify the SPAC if the average aggregate
global market capitalization falls below $150,000,000 or the average
aggregate global market capitalization of publicly held shares falls
below $125,000,000, and would advise the SPAC of the delisting
standard. A SPAC would not be eligible to follow the procedures
outlined in Sections 802.02 and 802.03 of the Manual with respect to
this criterion (allowing the issuer to establish a plan to cure any
deficiencies), and the SPAC would be subject to the delisting
procedures in Section 804 of the Manual.
---------------------------------------------------------------------------
the SPAC's securities initially listed (either common
stock or units) fall below the following distribution criteria:
(1) The number of total stockholders \13\ is less than 400; or
---------------------------------------------------------------------------
\13\ The number of beneficial holders of stock held in the name
of Exchange member organizations will be considered in addition to
holders of record.
---------------------------------------------------------------------------
(2) the number of total stockholders \14\ is less than 1,200 and
average monthly trading volume is less than 100,000 shares (for the
most recent 12 months); or
---------------------------------------------------------------------------
\14\ See id.
---------------------------------------------------------------------------
(3) the number of publicly held shares \15\ is less than
600,000;\16\ or
---------------------------------------------------------------------------
\15\ Shares held by directors, officers, or their immediate
families and other concentrated holdings of 10% or more are excluded
in calculating the number of publicly held shares.
\16\ If the unit of trading is less than 100 shares, the
requirement relating to the number of publicly held shares would be
reduced proportionately. Securities of SPACs trading as a unit would
be subject to suspension and delisting if any of the component parts
does not meet the applicable listing standards. If one or more of
the components is otherwise qualified for listing, such component(s)
may remain listed. To determine whether an individual component
satisfies the applicable distribution criteria, the units that are
intact and freely separable into their component parts would be
counted toward the total numbers required for continued listing of
the component. If a component is a warrant, it would be subject to
the continued listing standards for warrants set forth in Section
802.01D of the Manual, including a continued distribution
requirement of 100 holders. Nevertheless, under the proposal NYSE
has broad discretion to consider the delisting of any individual
component or unit if the Exchange believes the extent of public
distribution or the aggregate market value of such component or unit
has become so reduced as to make continued listing on the Exchange
inadvisable. The Exchange would consider the trading characteristics
of such component or unit and whether it would be in the public
interest for trading to continue, in reviewing the advisability of
the continued listing of an individual component or unit.
---------------------------------------------------------------------------
the SPAC fails to consummate a Business Combination within
the time period specified by its constitutive documents or required by
contract, or three years, whichever is shorter.
The continued listing standards set forth in Sections 801
(``Policy''), 802.01C (``Price Criteria for Capital or Common Stock''),
802.01D (``Other Criteria'') and 802.01E (``SEC Annual Report Timely
Filing Criteria'') of the Manual would also apply to SPACs, in the same
way those provisions apply to other equity securities.
2. At the Time of the Business Combination
After shareholders approve a Business Combination, but prior to its
consummation, the Exchange would consider whether the continued listing
of the securities of the SPAC, after the consummation of the Business
Combination, would be in the best interests of the Exchange and the
public interest. NYSE would have the discretion to delist securities of
the SPAC prior to consummation of the Business Combination. A SPAC
would not be eligible to follow the procedures to cure the deficiencies
outlined in Sections 802.02 and 802.03 of the Manual, and would be
subject to delisting procedures as set forth in Section 804 of the
Manual.
3. Continued Listing Standard Applicable to SPACs After Business
Combination
After consummation of a Business Combination, the SPAC would be
subject to Sections 801 and 802.01\17\ of the Manual in their entirety
and would be considered to be below compliance if it does not meet the
continued listing standards applicable to operating companies listed
under the Exchange's Earnings Test in Section 802.01B of the Manual--if
average global market capitalization over a consecutive 30-day period
is less than $75,000,000, and stockholders' equity is less than
$75,000,000.\18\
---------------------------------------------------------------------------
\17\ Section 802.01 of the Manual contains minimum holder,
trading volume, and/or number of publicly held shares requirements.
\18\ Section 802.01B of the Manual establishes separate
continued listing standards for companies that qualified to list
under each of the Exchange's four separate initial listing standards
for operating companies: (1) The Earnings Test; (2) the Valuation/
Revenue with Cash Flow Test; (3) the Pure Valuation/Revenue Test;
and (4) the Affiliated Company Test. NYSE noted that since it cannot
predict the standard that would be most appropriate to a SPAC after
a Business Combination, the Exchange would apply the Earnings Test
to all post-Business Combination SPACs. In the event that the post-
Business Combination SPAC could not meet the Earnings Test continued
listing standards, under Section 802.02 of the Manual, if the SPAC
could qualify under another original listing standard, its
securities would remain listed on NYSE.
---------------------------------------------------------------------------
4. Application of ``Back Door Listing'' Rule to SPACs Upon Consummation
of Business Combination
When a SPAC consummates a Business Combination, the Exchange would
consider whether the Business Combination gives rise to a ``back door
[[Page 27599]]
listing'' as described in Section 703.08(E) of the Manual (i.e.,
whether NYSE believes the transaction constitutes an acquisition of the
SPAC by an unlisted company). Under this provision, when a transaction
is deemed a backdoor listing, Section 703.08(E) of the Manual would
require the resulting company to meet the standards for original
listing. If the resulting company could not qualify for original
listing, NYSE will refuse to list additional shares of the listed SPAC
for the transaction and the SPAC would be delisted.\19\
---------------------------------------------------------------------------
\19\ Section 703.08(E) of the Manual also states: ``In applying
the above policy, consideration will be given to all factors
including changes in ownership of the listed company, changes in
management, whether the size of the company being `acquired' is
larger than the listed company and whether the two businesses are
related on a horizontal or a vertical basis. All circumstances will
be considered collectively and weight may be given to compensating
factors.''
---------------------------------------------------------------------------
C. Minimum Closing Price Requirement for New Listings
The Exchange also proposes to adopt a requirement that any equity
security listing on the Exchange must have a closing price or, if
listing in connection with an IPO, an IPO price per share of at least
$4 at the time of initial listing.\20\
---------------------------------------------------------------------------
\20\ See infra note 30.
---------------------------------------------------------------------------
D. Minimum Value of New Listings of Convertible Debt
The Exchange also proposes to adopt a requirement that any
convertible debt issuance listed on the Exchange must at the time of
listing have an aggregate market value or principal amount of no less
than $10,000,000.\21\
---------------------------------------------------------------------------
\21\ See infra note 31.
---------------------------------------------------------------------------
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange and, in
particular, the requirements of Section 6(b) of the Act and the rules
and regulations thereunder. Specifically, the Commission finds that the
proposal is consistent with Section 6(b)(5) of the Act,\22\ which
requires that an exchange have rules designed, among other things, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, to protect investors and the public interest, and to not
permit unfair discrimination between customers, issuers, brokers, or
dealers.\23\
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78f(b)(5).
\23\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rules' impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
The development and enforcement of adequate standards governing the
initial and continued listing of securities on an exchange is an
activity of critical importance to financial markets and the investing
public. Listing standards, among other things, serve as a means for an
exchange to screen issuers and to provide listed status only to bona
fide companies that have or, in the case of an IPO, will have
sufficient public float, investor base, and trading interest to provide
the depth and liquidity necessary to promote fair and orderly markets.
Adequate standards are especially important given the expectations of
investors regarding exchange trading and the imprimatur of listing on a
particular market. Once a security has been approved for initial
listing, maintenance criteria allow an exchange to monitor the status
and trading characteristics of that issue to ensure that it continues
to meet the exchange's standards for market depth and liquidity so that
fair and orderly markets can be maintained.
As stated at the outset, SPACs are essentially shell companies that
raise capital in IPOs, with the purpose of purchasing operating
companies or assets within a certain time frame. The proceeds of the
IPOs are placed in an escrow account during this period. SPACs usually
require a majority of shareholders to approve any Business Combination.
If shareholders do not approve a deal within the relevant time frame,
shareholders have the option to demand their investment be returned
from the escrow account. Management of the SPAC typically invests its
own money in the SPAC--generally 2% to 4%--which generally is forfeited
if a Business Combination is not consummated. If a Business Combination
is consummated, management typically receives up to a 20% interest in
the resulting company. The securities sold in the IPO generally consist
of a unit made up of one share of common stock and a warrant (or
fraction of a warrant) to purchase common stock. The common stock and
warrants may be traded separately after the IPO.
As discussed in more detail below, the proposed standards would
permit NYSE to list securities of SPACs that meet specified criteria,
including market value, distribution, and price requirements, which
should help to ensure that the securities have sufficient public float,
investor base, and liquidity to promote fair and orderly markets. In
addition, SPACs would have to meet other investor protection criteria,
such as the escrow account requirement, public shareholder approval
requirement, public shareholder redemption rights, and public
shareholder liquidation preferences, which should further the ability
of investors to protect and monitor their investment pending a Business
Combination. Finally, SPACs that list securities on NYSE would have to
comply with all NYSE corporate governance requirements and distribution
criteria applicable to operating companies.
A. Initial Listing Standards for SPACs
The Commission believes that the Exchange's proposed initial
listing standards to list SPAC securities are consistent with the
requirements of the Act, including the protection of investors and the
promotion of fair and orderly markets. SPACs that list securities on
the NYSE would need to deposit at least 90% of the IPO proceeds in a
trust account controlled by an independent custodian. Under the listing
standards, the proceeds would be under control of the independent
custodian until consummation of a Business Combination with one or more
operating companies that, among other things, have a fair market value
equal to at least 80% of the net assets held in trust.\24\ Public
shareholders must vote to approve the Business Combination, and the
listing standards contain, for those public shareholders voting against
the Business Combination, certain Conversion Rights for the return of
their initial investment on a pro rata basis (net of certain expenses).
Some of the NYSE's proposed requirements, such as the Conversion
Rights, are similar in some respects to the investor protection
measures contained in Rule 419 under the Securities Act of 1933 with
respect to blank check companies.\25\ SPACs that list securities on
NYSE would also need to demonstrate sufficient market value and
liquidity of the securities. The Commission believes that these
standards should help to ensure that a sufficient market, with adequate
depth
[[Page 27600]]
and liquidity, would exist for listed SPAC securities.
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\24\ This amount is net of amounts disbursed to management for
working capital purposes and excludes the amount of any deferred
underwriting discount held in trust.
\25\ See 17 CFR 230.419. Rule 419 applies to blank check
companies issuing penny stock as defined under Rule 3a51-1(a)(2) of
the Act. See 17 CFR 240.3a51-1(a)(2). Rule 419 is not applicable to
securities traded on the NYSE.
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Further, the proposed initial listing standards require additional
protections for public shareholders. The Commission believes that these
protections, such as requiring a majority of public shareholders to
approve a Business Combination, the right of public shareholders voting
against a Business Combination to exercise Conversion Rights to redeem
their investment, a prohibition on the consummation of a Business
Combination if a certain percentage of public shares are voted against
a Business Combination, and the right of shareholders to receive
liquidation rights if no Business Combination is consummated within a
specified period of time not to exceed three years, would help to
ensure that public shareholders approve management's decision with
respect to a Business Combination, and have remedies if they disagree.
Moreover, the proposed initial listing standards impose
requirements on management of the SPAC. First, management of a SPAC
would have to consummate a Business Combination within three years or
less, or else investors would be entitled to liquidation rights, and
NYSE would delist the securities of the SPAC. Second, the founding
shareholders of the SPAC (including but not limited to management) must
waive their liquidation rights. Third, NYSE will consider the
management's experience, record, compensation, equity ownership, and
restriction on sales, when considering whether to list the
securities.\26\ The Commission believes that these requirements should
help to ensure that management of the SPAC, among other things, is
incented to actively seek out a Business Combination and has requisite
experience.
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\26\ Under its rules, NYSE has the discretion to consider the
listing of the securities of SPACS on a case-by-case basis. The NYSE
stated in its filing that it will not necessarily list the
securities of every SPAC that meets the proposed minimum listing
requirements.
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The Commission believes that these safeguards should help to ensure
that SPACs that list securities on NYSE will have taken certain
additional steps to address investor protection and other matters. In
this regard, the Commission expects NYSE to thoroughly review potential
listings of SPAC securities to ensure that its listing standards have
been met. Based on the foregoing, the Commission finds the proposed
initial listing standards are consistent with the requirements of the
Act.
B. Continued Listing Standard of SPACs
The Commission believes that the Exchange's proposed continued
listing standards for SPACs are consistent with the requirements of the
Act and the protection of investors. Due to its nature, a SPAC's
financial condition will vary depending on where it is in the
acquisition process. For example, immediately after listing, a SPAC
would essentially be a shell company with funds to seek an acquisition
of an operating business. Once the SPAC has announced a proposed
acquisition, the SPAC would be in the midst of a potential Business
Combination. Finally, if the Business Combination is consummated, the
SPAC would begin operating a new business. NYSE is proposing continued
listing standards for all three situations.
Prior to a Business Combination, a SPAC would need to maintain
average aggregate global market capitalization of at least $125,000,000
or average aggregate global market capitalization of publicly held
shares of at least $100,000,000, in each case over 30 consecutive
trading days. NYSE would delist securities of SPACs that fall below
such requirements immediately and the SPACs could not use the time
period to cure deficiencies afforded to other operating companies.\27\
In addition, the continued listing standards would require SPACs to
maintain certain distribution criteria and would require a Business
Combination within three years or less.
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\27\ See Section 802.02 of the Manual.
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Immediately prior to consummation of a Business Combination, NYSE
would consider whether listing of the combined entity would be in the
best interest of the Exchange and the public interest. Under this
provision, NYSE would have broad discretion to delist the securities of
the SPAC prior to the consummation of a Business Combination that would
not be in the interest of investors or the public. In addition, NYSE
would consider whether a Business Combination could result in a back
door listing, and if so, would delist securities of the SPAC. The
Commission believes that this requirement will help to ensure that
companies that would not otherwise qualify for original listing could
not list on NYSE through a backdoor listing in violation of Section
703.08 of the Manual.
After consummation of a Business Combination, NYSE would require
the SPAC to meet the continued listing distribution criteria for common
stock \28\ and the continued listing Earnings Test numerical
criteria.\29\ For continued listing, the Earnings Test requires average
global market capitalization over a consecutive 30 trading-day period
of at least $75,000,000 and total stockholders' equity of at least
$75,000,000. After consummation of a Business Combination, SPACs would
be treated by NYSE as other operating companies.
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\28\ See Section 802.01A of the Manual.
\29\ See Section 802.01B of the Manual. See also note 18 supra.
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Taken as a whole, the Commission believes that the proposed
continued listing standards are consistent with the requirements of the
Act. SPACs would be subject to different continued listing standards,
depending on whether a Business Combination has been consummated, that
are designed to, among other things, protect investors and promote fair
and orderly markets. The Commission expects NYSE to actively monitor
compliance by listed SPACs with these listing standards.
C. Minimum Closing Price Requirement for New Listings
The Commission notes that the proposed change to require a company
to have a closing price or an IPO price of at least $4 per share meets
the criteria from the definition of penny stock contained in Rule 3a51-
1 under the Act.\30\ The Commission finds that this proposal is
consistent with the requirements of the Act.
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\30\ See 17 CFR 240.3a51-1(a)(2)(i)(C). The Commission notes
that the NYSE is adopting a minimum bid price so that securities
listed on the NYSE meet the exception from the definition of penny
stock in Rule 3a51-1(a)(2). Securities currently listed on the NYSE
are included in the ``grandfather'' exception to the definition of
penny stock in Rule 3a51-1(a)(1) for securities registered or listed
``on a national securities exchange that has been continuously
registered as a national securities exchange since April 20, 1992 *
* * and * * * has maintained quantitative listing standards that are
substantially similar to or stricter than those listing standards
that were in place on that exchange on January 8, 2004.'' By
adopting a listing standard for SPACs, NYSE's listing standards
would no longer be included in the ``grandfather'' exception.
Further, the Commission notes that for existing companies, other
national securities exchanges generally require those companies to
meet the minimum bid price for certain consecutive trading days
prior to listing. See, e.g., Nasdaq Rule 4310(c)(2) and NYSE Arca
Rule 5.2(c)(ii). The Commission still generally believes that for
companies transferring from another marketplace, to assess
suitability for trading, it is important and useful to ensure the
bid test is sustainable based on some period of time prior to
listing.
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D. Minimum Value of New Listings of Convertible Debt
The Commission notes that the proposed change to require
convertible debt issue to have an aggregate market value or principal
amount of no less than $10,000,000 meets the criteria from the
definition of penny stock contained
[[Page 27601]]
in Rule 3a51-1 under the Act.\31\ The Commission finds that this
proposal is consistent with the requirements of the Act.
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\31\ See 17 CFR 240.3a51-1(a)(2)(i)(F). The Commission notes
that the NYSE is adopting a minimum value for convertible debt so
that securities listed on the NYSE meet the exception from the
definition of penny stock in Rule 3a51-1(a)(2). As noted in footnote
30, supra, securities listed on the NYSE are included in the
``grandfather'' exception to the definition of penny stock in Rule
3a51-1(a)(1) for securities registered or listed ``on a national
securities exchange that has been continuously registered as a
national securities exchange since April 20, 1992...and...has
maintained quantitative listing standards that are substantially
similar to or stricter than those listing standards that were in
place on that exchange on January 8, 2004.'' By adopting a listing
standard for SPACs, NYSE's listing standards would no longer be
included in the ``grandfather'' exception.
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E. Conclusion
Based on the above, the Commission believes the proposed rule
change is reasonable and should provide for the listing of SPACs with
baseline investor protection and other standards.\32\ The Commission
believes that, as discussed above, NYSE has developed sufficient
standards to allow the listing of SPACs on the NYSE, consistent with
the requirements set forth under the Act and in particular, Section
6(b)(5).\33\
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\32\ The Commission notes that under the proposal, the Exchange
has the discretion to consider initial listing of securities of
SPACs that otherwise meet NYSE's listing standards, on a case-by-
case basis, and the Exchange has broad discretion to delist the
securities of SPACs at the time of the Business Combination if the
Exchange believes it is not in the best interest of the Exchange and
the public interest.
\33\ 15 U.S.C. 78s(b)(5). The staff of the Division of Trading
and Markets would not recommend enforcement action to the Commission
under Rules 15g-2 through 15g-9 under the Act if broker-dealers
treat equity securities listed pursuant to the initial listing
requirements set forth in the Manual as meeting the exclusion from
the definition of penny stock contained in Rule 3a51-1 under the Act
pursuant to paragraph (a)(2) thereof.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\34\ that the proposed rule change (SR-NYSE-2008-17) is hereby
approved.
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\34\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E8-10537 Filed 5-12-08; 8:45 am]
BILLING CODE 8010-01-P
