Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Modify Nasdaq IM-5101-2 To Permit an Acquisition Company To Contribute a Portion of Its Deposit Account to Another Entity in a Spin-Off or Similar Corporate Transaction, 55664-55669 [2021-21770]
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Federal Register / Vol. 86, No. 191 / Wednesday, October 6, 2021 / Notices
that such exemption is consistent with
the public interest, the protection of
investors and the removal of
impediments to and perfection of the
mechanism of a national market
system.11
The Commission hereby grants the
Exchange a limited exemption from the
Quote Rule to operate the Program and
disseminate the RLI without having to
include RLP interest in IEX’s best bid or
offer. For the reasons discussed below,
the Commission has determined that it
is consistent with the public interest,
the protection of investors and the
removal of impediments to and
perfection of the mechanism of a
national market system to provide a
limited exemption from Rule 602 of
Regulation NMS with respect to IEX’s
Program.
In light of the opportunity for retail
customers to obtain potentially
substantial price improvement at
midpoint prices under IEX’s Program,
and in the interests of facilitating the
ability of IEX to compete to be able to
provide that opportunity to Retail orders
in the limited context of the Program,
providing a limited exemption should
promote competition between
exchanges and between IEX and offexchange market makers.
Broad dissemination of the RLI
through the appropriate securities
information processor should benefit
retail customers by providing brokerdealers that route Retail orders with
limited supplemental information about
the availability of price improvement
opportunities for Retail orders under the
Program.12 To the extent the RLI is
successful in attracting Retail orders to
the Program, the increased competition
should benefit retail customers by
providing a mechanism through which
they can receive the better prices that
liquidity providers are willing to give
their orders. This exemption also should
benefit market participants that seek the
opportunity to interact directly with
Retail orders, as any liquidity provider
may submit RLP interest to provide
better prices to retail customers on the
Exchange. Quotations that Rule 602
requires to be included in an exchange’s
best bid and offer are used to establish
the national best bid and offer for an
NMS stock and are eligible for
protection against trade-throughs under
Rule 611 of Regulation NMS.13 Such
quotations therefore must be accessible
to all market participants on terms that
CFR 242.602(d).
RLI will not reveal the presence of other
midpoint interest. Non-displayed midpoint interest
could be present on IEX outside of the Program, and
Retail orders will be able to trade with that interest.
13 See 17 CFR 242.611.
are not unfair or unreasonably
discriminatory. In contrast, access to
RLP interest is limited to Retail orders
because many market participants may
be willing to offer liquidity to retail
investors at better prices than they
would be willing to offer to all market
participants. RLP interest thereby can
benefit retail investors by giving them
an opportunity to receive better prices
on exchanges, but it is unsuitable for
other purposes, including establishing a
national best bid and offer and
eligibility for Rule 611 protection.
Accordingly, it is ordered, pursuant to
Rule 602(d) of Regulation NMS, that IEX
is exempt from Rule 602 of Regulation
NMS with respect to IEX’s Program
specifically concerning the
dissemination of the RLI to advertise the
presence of RLP interest under the
Program without including RLP interest
in the Exchange’s quotation. This
exemption is conditioned on the
Exchange continuing to conduct the
Program substantially as described in
the Exchange’s request for exemptive
relief and the current applicable
Exchange rules, including the
dissemination of the RLI through the
appropriate securities information
processor. Any changes thereto may
cause the Commission to reconsider this
exemption. The foregoing exemption is
subject to modification or revocation at
any time if the Commission determines
that such action is necessary or
appropriate in furtherance of the
purposes of the Exchange Act.
For the Commission, by the Division of
Trading and Markets pursuant to delegated
authority.14
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–21768 Filed 10–5–21; 8:45 am]
BILLING CODE 8011–01–P
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Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change To Modify
Nasdaq IM–5101–2 To Permit an
Acquisition Company To Contribute a
Portion of Its Deposit Account to
Another Entity in a Spin-Off or Similar
Corporate Transaction
September 30, 2021.
I. Introduction
On June 24, 2021, The Nasdaq Stock
Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’ or
‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
modify Nasdaq IM–5101–2 to permit an
acquisition company to contribute a
portion of the amount held in its deposit
account to a deposit account of a new
acquisition company in a spin-off or
similar corporate transaction. The
proposed rule change was published for
comment in the Federal Register on July
13, 2021.3 On August 25, 2021, pursuant
to Section 19(b)(2) of the Act,4 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 This order
institutes proceedings pursuant to
Section 19(b)(2)(B) of the Act 6 to
determine whether to approve or
disapprove the proposed rule change.
II. Description of the Proposed Rule
Change
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 92344
(July 7, 2021), 86 FR 36841 (‘‘Notice’’). Comments
received on the proposal are available on the
Commission’s website at: https://www.sec.gov/
comments/sr-nasdaq-2021-054/
srnasdaq2021054.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 92751,
86 FR 48780 (August 31, 2021). The Commission
designated October 11, 2021 as the date by which
the Commission shall approve or disapprove, or
institute proceedings to determine whether to
approve or disapprove, the proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
2 17
12 The
20:38 Oct 05, 2021
[Release No. 34–93219; File No. SR–
NASDAQ–2021–054]
Generally, the Exchange will not
permit the initial or continued listing of
a company that has no specific business
plan or that has indicated that its
11 17
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business plan is to engage in a merger
or acquisition with an unidentified
company or companies.7 However, the
Exchange currently will permit the
listing of a company whose business
plan is to complete an initial public
offering (‘‘IPO’’) and engage in a merger
or acquisition with one or more
unidentified companies within a
specific period of time (‘‘Acquisition
Company’’ or ‘‘SPAC’’), if the company
meets all applicable initial listing
requirements, as well as certain
conditions described in Nasdaq IM–
5101–2.8 Among other things, Nasdaq
IM–5101–2 requires that at least 90% of
the gross proceeds from the IPO and any
concurrent sale by the Acquisition
Company of equity securities must be
deposited in a trust account maintained
by an independent trustee, an escrow
account maintained by an insured
depository institution, or in a separate
bank account established by a registered
broker or dealer (collectively, a ‘‘deposit
account’’).9 In addition, Nasdaq IM–
5101–2 requires that within 36 months
of the effectiveness of its IPO
registration statement, or such shorter
period that the Acquisition Company
specifies in its registration statement,
the Acquisition Company must
complete one or more business
combinations having an aggregate fair
market value of at least 80% of the value
of the deposit account (excluding any
deferred underwriters fees and taxes
payable on the income earned on the
deposit account) at the time of the
agreement to enter into the initial
combination.10 Nasdaq IM–5101–2
further requires each business
combination to be approved by a
majority of the Acquisition Company’s
independent directors.11 If the
Acquisition Company holds a
shareholder vote on a business
combination, the business combination
must be approved by a majority of the
shares of common stock voting at the
meeting and public shareholders voting
against the business combination must
have the right to convert their shares of
common stock into a pro rata share of
the aggregate amount then in the deposit
account (net of taxes payable and
amounts distributed to management for
working capital purposes) if the
business combination is approved and
consummated.12 If a shareholder vote
on a business combination is not held,
the Acquisition Company must provide
7 See
Nasdaq IM–5101–2.
id.
9 See Nasdaq IM–5101–2(a).
10 See Nasdaq IM–5101–2(b).
11 See Nasdaq IM–5101–2(c).
12 See Nasdaq IM–5101–2(d).
8 See
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all shareholders with the opportunity to
redeem all their shares for cash equal to
their pro rata share of the aggregate
amount then in the deposit account (net
of taxes payable and amounts
distributed to management for working
capital purposes), pursuant to Rule
13e–4 and Regulation 14E under the
Act, which regulate issuer tender
offers.13
The Exchange now proposes to
modify Nasdaq IM–5101–2 to allow a
SPAC listed under that rule to
contribute a portion of its deposit
account to a deposit account of a new
entity in a spin-off or similar corporate
transaction (‘‘SpinCo SPAC’’).
According to the Exchange, when a
SPAC conducts its IPO, it raises the
amount of capital that it estimates will
be necessary to finance a subsequent
business combination with its ultimate
target; however, the Exchange believes
that because a SPAC cannot identify or
select a specific target at the time of its
IPO, often the amount raised is not
optimal for the needs of a specific
target.14 The Exchange states that it is
proposing to modify Nasdaq IM–5101–
2 to permit what it believes is a more
efficient structure whereby a SPAC can
raise in its IPO the maximum amount of
capital it anticipates it may need for a
business combination transaction and
then ‘‘rightsize’’ itself by contributing
any amounts not needed to a SpinCo
SPAC, which would be subject to the
provisions of Nasdaq IM–5101–2, in the
same manner as the original SPAC, and
spun off to the original SPAC’s
shareholders.15
Specifically, proposed Nasdaq IM–
5101–2(f) would provide that a SPAC
will be permitted to contribute a portion
of the amount held in the deposit
account to a deposit account of another
entity (the ‘‘Contribution’’) in a spin-off
or similar corporate transaction, subject
to the following conditions:
(i) The requirements set forth in Nasdaq
IM–5101–2(d) and (e) that shareholders of a
SPAC must have the right to convert or
redeem their shares of common stock into a
pro rata share of the aggregate amount in the
deposit account (net of taxes payable and
amounts distributed to management for
working capital purposes) at the times
13 See
Nasdaq IM–5101–2(e).
Notice, supra note 3, at 36841. The
Exchange further states that ‘‘[t]his has resulted in
the inefficient, current practice of SPAC sponsors
creating multiple SPACs of different sizes at the
same time, with the intention to use the SPAC that
is closest in size to the amount a particular target
needs.’’ Id.
15 See id. The 36-month period to complete a
business combination under Nasdaq IM–5101–2
would, however, be calculated for each SpinCo
SPAC based on the date of the original SPAC’s
effective registration statement.
14 See
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specified in such paragraphs may be based
on the amounts in the deposit account of the
SPAC at such times after having been
reduced by the Contribution provided that, in
connection with the Contribution, the
SPAC’s public shareholders shall have had
the right, through one or more corporate
transactions, to redeem a portion of their
shares of common stock (or, if units were
sold in the SPAC’s IPO, units) for their pro
rata portion of the amount of the
Contribution in lieu of being entitled to
receive shares or units in the SpinCo SPAC;
(ii) the public shareholders of the SPAC
receive shares or units of the SpinCo SPAC
on a pro rata basis, except to the extent they
have elected to redeem a portion of their
shares of the SPAC in lieu of being entitled
to receive shares or units in the SpinCo
SPAC;
(iii) the amount distributed to the SpinCo
SPAC will remain in a deposit account for
the benefit of the shareholders of the SpinCo
SPAC in the same manner as described in
Nasdaq IM–5101–2(a);
(iv) the SpinCo SPAC meets all applicable
initial listing requirements, as well as the
conditions described in Nasdaq IM–5101–
2(a) through (e); it being understood that,
following such spin-off or similar corporate
transaction: (A) For purposes of Nasdaq IM–
5101–2(b) the 80% described therein shall,16
in the case of the SPAC, be calculated based
on the aggregate amount remaining in the
deposit account of the SPAC at the time of
the agreement to enter into the initial
combination after the Contribution to the
SpinCo SPAC, and, in the case of the SpinCo
SPAC, be calculated based on the aggregate
amount in its deposit account at the time of
its agreement to enter into its initial
combination,17 and (B) for purposes of
Nasdaq IM–5101–2(d) and (e),18 the right to
convert and opportunity to redeem shares of
common stock on a pro rata basis,
respectively, shall, in the case of the SPAC,
be deemed to apply to the aggregate amount
remaining in the deposit account of the SPAC
after the contribution to the SpinCo SPAC,
and, in the case of the SpinCo SPAC, be
deemed to apply to the aggregate amount in
its deposit account;
(v) in the case of the SpinCo SPAC, and
any additional entities spun off from the
SpinCo SPAC, each of which will also be
considered a SpinCo SPAC, the 36-month
period described in Nasdaq IM–5101–2(b) (or
such shorter period that the original SPAC
specifies in its registration statement) will be
calculated based on the date of effectiveness
of the SPAC’s IPO registration statement; and
(vi) in the aggregate, through one or more
opportunities by the SPAC and one or more
SpinCo SPACs, public shareholders will have
the ability to convert or redeem shares, or
receive amounts upon liquidation, for the full
16 See supra note 10 and accompanying text, for
a description of the requirements of Nasdaq IM–
5101–2(b).
17 As the Exchange states, this amount would be
calculated after giving effect to the SpinCo SPAC’s
contribution to a subsequent SpinCo SPAC, if any.
See Notice, supra note 3, at 36842.
18 See supra notes 12–13 and accompanying text,
for a description of the requirements of Nasdaq IM–
5101–2(d) and (e).
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amount of the deposit account established by
the SPAC as described in Nasdaq IM–5101–
2(a) (excluding any deferred underwriters
fees and taxes payable on the income earned
on the deposit account).19
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The Exchange states that, under the
proposal, it expects that the new
structure will be implemented in the
following manner. If a listed SPAC (the
‘‘Original SPAC’’) determines that it will
not need all the cash in its deposit
account for its initial business
combination, the Original SPAC will
designate the excess cash for a new
deposit account of a SpinCo SPAC (the
‘‘SpinCo Deposit Account,’’ and the
amount retained in the deposit account
of the Original SPAC, the ‘‘Retained
SPAC Deposit Account’’).20 The
Exchange states that the amount
designated for the SpinCo Deposit
Account must continue to be held for
the benefit of the shareholders of the
Original SPAC until the completion of
the spin-off transaction and, following
the spin-off of the SpinCo SPAC to the
Original SPAC’s shareholders, the
SpinCo Deposit Account would be
subject to the same requirements as the
deposit account of the Original SPAC.21
According to the Exchange, the
SpinCo SPAC would file a registration
statement under the Securities Act of
1933 for purposes of effecting the spinoff of the SpinCo SPAC and, prior to the
effectiveness of the registration
statement, the Original SPAC would
provide its public shareholders through
one or more corporate transactions with
the opportunity to redeem a pro rata
amount of their holdings equal to the
amount of the SpinCo Deposit Account
divided by the per share amount in the
Original SPAC’s deposit account (the
‘‘redemption price’’).22 The Exchange
further states that, after completing the
tender offer for the redemption and the
effectiveness of the SpinCo SPAC’s
registration statement, the Original
SPAC would contribute the SpinCo
Deposit Account to a deposit account
held by the SpinCo SPAC in exchange
for shares or units of the SpinCo SPAC,
which the Original SPAC would then
distribute to its public shareholders on
a pro rata basis through one or more
19 Proposed Nasdaq IM–5101–2(f) provides that
the conditions set forth in the proposed rule would
similarly apply to successive spin-offs or similar
corporate transactions, ‘‘mutatis mutandis.’’
20 See Notice, supra note 3, at 36841–42.
21 See id. at 36842.
22 See id. According to the Exchange, the
redemption could occur, for example, through a
partial cash tender offer for shares of the Original
SPAC pursuant to Rule 13e–4 and Regulation 14E
of the Act, and the redemption may be of a separate
class of shares distributed to unitholders of the
Original SPAC for the purpose of facilitating the
redemption. See id. at 36842 n.4.
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corporate transactions pursuant to the
SpinCo SPAC’s effective registration
statement.23
According to the Exchange, the
Original SPAC would then continue to
operate as a SPAC until it completes its
business combination and would offer
redemption rights to its public
shareholders in connection with that
business combination in the same
manner as a traditional SPAC, while the
SpinCo SPAC would operate in the
same manner as a traditional SPAC,
except that it could effect a subsequent
spin-off prior to its business
combination like the Original SPAC.24
The Exchange states that if SpinCo
SPAC does not elect to effect a spin-off,
it would proceed to complete an initial
business combination and offer
redemption rights in connection
therewith like a traditional SPAC.25
III. Proceedings To Determine Whether
To Approve or Disapprove SR–
NASDAQ–2021–054 and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 26 to determine
whether the proposed rule change
should be approved or disapproved.
Institution of such proceedings is
appropriate at this time in view of the
legal and policy issues raised by the
proposed rule change. Institution of
proceedings does not indicate that the
Commission has reached any
conclusions with respect to any of the
issues involved.
Pursuant to Section 19(b)(2)(B) of the
Act,27 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of the proposed rule
change’s consistency with the Act and,
in particular, with Section 6(b)(5) of the
Act, which requires, among other
things, that the rules of a national
securities exchange be designed to
23 See
id. at 36842.
id. The proposed rule would provide that,
for purposes of Nasdaq IM–5101–2(b), the Original
SPAC must complete one or more business
combinations with an aggregate fair market value of
at least 80% of the aggregate amount remaining in
the Retained SPAC Deposit Account, after the
contribution to the SpinCo SPAC, at the time of its
agreement to enter into its initial combination.
Nasdaq further states that, similarly, a SpinCo
SPAC must complete one or more business
combinations with an aggregate fair market value of
at least 80% of the aggregate amount remaining in
the SpinCo Deposit Account at the time of its
agreement to enter into its initial combination after
giving effect to its contribution to any subsequent
SpinCo SPAC.
25 See id.
26 15 U.S.C. 78s(b)(2)(B).
27 Id.
24 See
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prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and to protect investors and the
public interest, and not be designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.28
As described above, the proposal
would allow a SPAC listed under
Nasdaq IM–5101–2 to contribute a
portion of the amount held in its deposit
account to the deposit account of a
SpinCo SPAC. The Exchange states that
the proposal would permit a more
efficient structure because a SPAC often
raises an amount of capital through its
IPO that is not optimal for the needs of
a specific acquisition target.29
According to the Exchange, this has
resulted in SPAC sponsors creating
multiple SPACs of different sizes at the
same time, with the intention to use the
SPAC that is closest in size to the
amount a particular acquisition target
needs.30 The Exchange believes this
practice creates the potential for
conflicts of interest, fails to optimize the
amount of capital that would benefit the
SPAC’s public shareholders and a
business combination target, creates
inefficiencies, and can lead to
confusion.31 Accordingly, the Exchange
believes the proposal would provide
shareholders the opportunity to invest
with a sponsor without spreading that
investment across the sponsor’s
multiple SPACs.32
The Commission received comments
broadly supporting the proposed rule
change. Specifically, one commenter
stated that the proposed rule change
would introduce a ‘‘more efficient, costeffective[,] and flexible’’ structure than
provided for by the current SPAC listing
rules, ‘‘while continuing to offer
significant and appropriate protections
to SPAC investors.’’ 33 This commenter
further argued that shareholders’ ability
under the proposed rule change to
redeem their investment in connection
with each specific business combination
by the Original SPAC or a SpinCo SPAC
would both increase flexibility and
28 15
U.S.C. 78f(b)(5).
Notice, supra note 3, at 36841.
30 See id.
31 See id.
32 See id. at 36842.
33 See letter from Kellen Carter, ARK Investment
Management LLC, to Vanessa Countryman,
Secretary, Commission, dated August 2, 2021, at
1–2.
29 See
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investors’ ability to understand the
companies that a SPAC plans to acquire
and the risks associated with each such
target company.34 Another commenter
similarly argued that the proposed rule
change would permit a more efficient
SPAC structure while ‘‘maintaining all
of the investor protections’’ in the
current SPAC listing rules.35
The Commission has concerns,
however, about whether the proposal is
sufficiently designed to protect
investors and the public interest, as
required by Section 6(b)(5) of the Act.
First, the Commission is concerned that
proposed Nasdaq IM–5101–2(f) would
circumvent the current requirements of
Nasdaq IM–5101–2 that the Commission
previously found were designed to
protect investors.36 Specifically, Nasdaq
IM–5101–2(b) requires a SPAC to
complete one or more business
combinations having an aggregate fair
market value of at least 80% of the value
of the deposit account.37 This 80%
requirement sets a minimum size of a
business combination that investors will
be aware of from their initial
investment. In addition, the 80%
requirement ensures that the founders of
the SPAC will not seek a very small
SPAC target solely to ensure they
successfully complete a business
combination in order to break escrow
and thereby earn their payment
(promote) for finding a target. The
proposal could potentially allow a
SPAC to engage in multiple business
combinations that are very small in size
as compared to the original amount in
the deposit account. The proposal also
does not include any limitations with
respect to the amount a SPAC may
contribute to a SpinCo SPAC and
thereby reduce its escrow account.
Moreover, it appears the proposed
structure could potentially incentivize
SPAC founders to complete smaller
business combinations in cases where
they cannot identify a target company of
sufficient size to meet the 80%
requirement with respect to the Original
SPAC, thereby leaving investors with a
choice of whether to accept an
investment in a smaller-sized company
34 See
id. at 2.
letter from White & Case LLP to Vanessa
Countryman, Secretary, Commission, dated August
3, 2021, at 1.
36 See Securities Exchange Act Release No. 58228
(July 25, 2008), 73 FR 44794 (July 31, 2008) (Order
Granting Approval to Proposed Rule Change, as
modified by Amendment No. 1, to Adopt
Additional Initial Listing Standards to list
Securities of Special Purpose Acquisition
Companies) (NASDAQ–2008–013) (‘‘2008 Order’’).
37 The deposit account must contain at least 90%
of the gross proceeds from the SPAC’s IPO and any
concurrent sale by the SPAC of equity securities.
See Nasdaq IM–5101–2(a).
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35 See
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than originally contemplated or a partial
redemption of their original investment
from the reduced deposit account. The
Commission is concerned that allowing
SPACs to engage in such transactions
effectively eliminates the original 80%
requirement, may subvert investor
expectations regarding a SPAC’s future
business combination prospects, and
may benefit the founders of SPACs at
the expense of retail investors.38 In this
regard, the Commission is concerned
that the Exchange has not provided
sufficient justification regarding how its
proposal is consistent with the
protection of investors, including the
investor protection measures that were
originally contemplated by Nasdaq IM–
5101–2 and which the Commission
found to be consistent with the Act.39
Furthermore, the Commission
believes the proposal could introduce
additional complexity to SPAC
securities, particularly for retail
investors. While the market in SPAC
securities is already complex, the
Exchange’s proposal would allow for
the listing of SPACs that may spin-off
into smaller and smaller SPACs, each
presenting additional risks and
considerations to investors that may not
be fully realized at the time of the
Original SPAC’s IPO or at the time of
each spin-off transaction when investors
have the opportunity to receive shares
in the SpinCo SPAC or redeem their
pro-rata portion of the SpinCo SPAC
Contribution.40 Further, although the
Exchange states the proposal is expected
38 Moreover, the proposal does not appear to be
limited to future SPACs and could potentially allow
existing SPACs to engage in spin-offs. The
Commission believes that permitting existing
SPACs to engage in such transactions could raise
investor protection issues given that investors who
initially invested in the SPACs would not have
been aware that the SPAC would not have to
comply with the 80% requirement and could spin
off into multiple SpinCo SPACs.
39 See 2008 Order, supra note 28. In addition, the
proposal appears to require redeeming shareholders
to effectively pay deferred underwriting fees by
deducting those fees from the aggregate redemption
amount available to shareholders. See proposed
Nasdaq IM–5101–2(f)(vi). This is not required for
the Original SPAC as set forth under current Nasdaq
IM–5101–2(d) and (e) and would result in the
redeeming shareholders potentially receiving less
than 90% of the gross proceeds from the deposit
account. Under the current SPAC listing rules, only
taxes payable and amounts distributed to
management for working capital purposes can be
excluded from the aggregate amount in the deposit
account.
40 For example, under the proposal it would be
difficult for an investor to know at the time of its
investment in the Original SPAC (or at the time of
each contribution) whether there will be future
contributions to SpinCos, and, if so, how much the
original escrow will be reduced and how much will
be left for the Original SPAC’s business
combination. The Commission believes such
information would be important to investors in
making informed investment decisions in the
Original SPAC.
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Sfmt 4703
55667
to allow a SPAC that determines that it
will have excess cash following its
initial business combination to spin-off
those funds to a new SPAC,41 the
proposal is not limited to this particular
situation and would allow a SPAC to
break escrow to create new SpinCo
SPACs at any time after its IPO,
regardless of whether any potential
business combination has been
identified.42 Moreover, under current
SPAC rules, investors have to make one
determination on whether to redeem
their shares or retain ownership in the
combined operating business after a
business combination that has an
aggregate fair market value of at least
80% of the value of the deposit account.
In contrast, under the proposal,
investors would have to make multiple
decisions on whether to hold or redeem
their securities in potentially multiple
SpinCo SPACs, and those investors that
choose to redeem may not be made
whole as to their original investment
until a subsequent business
combination of the Original SPAC and/
or the SpinCo SPACs occur.
Additionally, the proposal raises
concerns about whether investors are
adequately protected when only the
sponsors, not shareholders, are
participating in the decision to reduce
the deposit account and contribute
those funds to the SpinCo SPAC.43 For
these reasons, the Commission is
concerned that investors may not have
adequate information at the time they
initially invest in the Original SPAC and
at the time they are required to make
decisions regarding whether to invest in
the SpinCo SPACs or to redeem their
investment, which can occur multiple
times over the term of the Original
SPAC, raising investor protection
concerns under Section 6(b)(5) of the
Act.
The Commission is also concerned
that certain aspects of the proposed rule
change are vague and unclear and may
raise additional investor protection
41 See
Notice, supra note 3, at 36841–42.
proposal also does not include any timing
limitations with respect to when a SPAC may
engage in a contribution and spin-off. As such, it
appears that a contribution and spin-off could occur
very close to the end of the 36-month period within
which the Original SPAC and any SpinCo SPAC has
to complete its business combination. This raises
investor protection issues since shareholders may
not have enough time to review disclosures before
a vote or redemption decision is required.
43 In these situations, the SpinCo SPAC may be
structured completely differently than was
disclosed at the time of the investment in the
Original SPAC. For example, nothing in the
proposal prevents the SpinCo SPAC from having a
different target industry or business than the
Original SPAC, different compensation
arrangements than the Original SPAC, or different
terms than disclosed in the Original SPAC
registration statement.
42 The
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Federal Register / Vol. 86, No. 191 / Wednesday, October 6, 2021 / Notices
jspears on DSK121TN23PROD with NOTICES1
concerns. For example, proposed
Nasdaq IM–5101–2(f)(i) would provide
shareholders the right to redeem,
‘‘through one or more corporate
transactions,’’ their pro rata portion of
the SPAC’s contribution to a SpinCo
SPAC’s deposit account. In addition,
proposed Nasdaq IM–5101–2(f)(vi)
provides that public shareholders will
have the ability to convert or redeem
shares, or receive amounts upon
liquidation, for the full amount of the
deposit account ‘‘through one or more
opportunities.’’ The proposal, however,
does not set forth any specific
requirements applicable to the
redemption or conversion opportunities
with respect to the contribution to a
SpinCo SPAC or specify what would
qualify as an acceptable corporate
transaction for purposes of a
redemption.44 Moreover, the proposed
rule states that a SPAC will be permitted
to contribute a portion of the amount
held in the deposit account to a deposit
account of ‘‘another entity’’ in a spin-off
‘‘or similar corporate transaction.’’
However, the proposal does not specify
whether there are any limitations on the
types of entities that may receive the
contribution, including whether such
entities could include an already
existing SPAC, or what would constitute
a ‘‘similar transaction.’’ The
Commission is concerned that the lack
of clarity and vagueness in the proposed
rule text may cause confusion amongst
market participants regarding the scope
of the proposal and what is required
under the proposed rules.
In addition, the Exchange has
proposed that the conditions described
in proposed Nasdaq IM–5101–2(f) shall
apply to successive spin-offs or similar
corporate transactions, ‘‘mutatis
mutandis.’’ The Exchange provides no
specificity or detail as to what this
means or what factors the Exchange
would consider when determining how
to apply the proposed rule to successive
spin-offs or similar corporate
transactions. As drafted, the rule text
would appear to give the Exchange
broad discretion to apply the proposed
rule in a different manner with respect
to successive spin-offs or transactions to
different SPAC issuers. It is also
difficult for the Commission to assess
44 The Exchange states that a redemption could
occur, for example, through a partial cash tender
offer for shares of the Original SPAC pursuant to
Rule 13e-4 and Regulation 14E of the Act, and the
redemption may be of a separate class of shares
distributed to unitholders of the Original SPAC for
the purpose of facilitating the redemption. See
Notice, supra note 3, at 36842 n.4. On the other
hand, Nasdaq IM–5101–2 currently includes very
specific requirements relating to redemption rights
of public shareholders with respect to a business
combination. See Nasdaq IM–5101–2(d)-(e).
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20:38 Oct 05, 2021
Jkt 256001
whether the proposal is consistent with
Section 6(b)(5) of the Act if the
Exchange could simply change how the
rule applies to fit a particular
transaction by invoking its discretion
through the proposed ‘‘mutatis
mutandis’’ language. The Commission
believes this lack of transparency and
objectivity in the proposed rule raises
investor protection and unfair
discrimination concerns under the Act
because market participants may be
confused about what is permitted under
the rules and the Exchange may elect to
apply its rules in an inconsistent and
discriminatory manner.
Accordingly, the Commission believes
there are questions as to whether the
proposal is consistent with Section
6(b)(5) of the Act and its requirements,
among other things, that the rules of a
national securities exchange be
designed to protect investors and the
public interest, and not be designed to
permit unfair discrimination.
Under the Commission’s Rules of
Practice, the ‘‘burden to demonstrate
that a proposed rule change is
consistent with the Exchange Act and
the rules and regulations issued
thereunder . . . is on the self-regulatory
organization that proposed the rule
change.’’ 45 The description of a
proposed rule change, its purpose and
operation, its effect, and a legal analysis
of its consistency with applicable
requirements must all be sufficiently
detailed and specific to support an
affirmative Commission finding,46 and
any failure of a self-regulatory
organization to provide this information
may result in the Commission not
having a sufficient basis to make an
affirmative finding that a proposed rule
change is consistent with the Exchange
Act and the applicable rules and
regulations.47
For these reasons, the Commission
believes it is appropriate to institute
proceedings pursuant to Section
19(b)(2)(B) of the Act 48 to determine
whether the proposal should be
approved or disapproved.
IV. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
45 17
CFR 201.700(b)(3).
id.
47 See id.
48 15 U.S.C. 78s(b)(2)(B).
46 See
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
persons concerning whether the
proposal is consistent with Section
6(b)(5) 49 of the Act or any other
provision of the Act, or the rules and
regulations thereunder. Although there
do not appear to be any issues relevant
to approval or disapproval that would
be facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4 under the Act,50 any request
for an opportunity to make an oral
presentation.51
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposed rule change should be
approved or disapproved by October 27,
2021. Any person who wishes to file a
rebuttal to any other person’s
submission must file that rebuttal by
November 10, 2021. The Commission
asks that commenters address the
sufficiency of the Exchange’s statements
in support of the proposal, which are set
forth in the Notice,52 in addition to any
other comments they may wish to
submit about the proposed rule change.
Comments may be submitted by any
of the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2021–054 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2021–054. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
49 15
U.S.C. 78f(b)(5).
CFR 240.19b–4.
51 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
52 See supra note 3.
50 17
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Federal Register / Vol. 86, No. 191 / Wednesday, October 6, 2021 / Notices
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NASDAQ–2021–054 and
should be submitted by October 27,
2021. Rebuttal comments should be
submitted by November 10, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.53
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–21770 Filed 10–5–21; 8:45 am]
BILLING CODE 8011–01–P
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 proposes to extend the
pilot related to the market-wide circuit
breaker in Rule 7.12 to the close of
business on March 18, 2022. The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at 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, 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
The Exchange proposes to extend the
pilot related to the market-wide circuit
breaker in Rule 7.12 to the close of
business on March 18, 2022.
[Release No. 34–93232; File No. SR–
NYSENAT–2021–19]
Self-Regulatory Organizations; NYSE
National, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Extend the Pilot
Related to the Market-Wide Circuit
Breaker in Rule 7.12
jspears on DSK121TN23PROD with NOTICES1
October 1, 2021.
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
September 30, 2021, NYSE National,
Inc. (‘‘NYSE National’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
53 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
20:38 Oct 05, 2021
The Market-Wide Circuit Breaker
(‘‘MWCB’’) rules, including the
Exchange’s Rule 7.12, provide an
important, automatic mechanism that is
invoked to promote stability and
investor confidence during periods of
significant stress when cash equities
securities experience extreme marketwide declines. The MWCB rules are
designed to slow the effects of extreme
price declines through coordinated
trading halts across both cash equity
and equity options securities markets.
The cash equities rules governing
MWCBs were first adopted in 1988 and,
in 2012, all U.S. cash equity exchanges
and FINRA amended their cash equities
uniform rules on a pilot basis (the ‘‘Pilot
Rules,’’ i.e., Rule 7.12 (a)–(d)).4 The
4 See Securities Exchange Act Release No. 67090
(May 31, 2012), 77 FR 33531 (June 6, 2012) (SR–
BATS–2011–038; SR–BYX–2011–025; SR–BX–
2011–068; SR–CBOE–2011–087; SR–C2–2011–024;
1 15
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Background
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55669
Pilot Rules currently provide for trading
halts in all cash equity securities during
a severe market decline as measured by
a single-day decline in the S&P 500
Index (‘‘SPX’’).5 Under the Pilot Rules,
a market-wide trading halt will be
triggered if SPX declines in price by
specified percentages from the prior
day’s closing price of that index. The
triggers are set at three circuit breaker
thresholds: 7% (Level 1), 13% (Level 2),
and 20% (Level 3). A market decline
that triggers a Level 1 or Level 2 halt
after 9:30 a.m. and before 3:25 p.m.
would halt market-wide trading for 15
minutes, while a similar market decline
at or after 3:25 p.m. would not halt
market-wide trading. (Level 1 and Level
2 halts may occur only once a day.) A
market decline that triggers a Level 3
halt at any time during the trading day
would halt market-wide trading for the
remainder of the trading day.
The Commission approved the Pilot
Rules, the term of which was to
coincide with the pilot period for the
Plan to Address Extraordinary Market
Volatility Pursuant to Rule 608 of
Regulation NMS (the ‘‘LULD Plan’’),6
including any extensions to the pilot
period for the LULD Plan.7 In April
2019, the Commission approved an
amendment to the LULD Plan for it to
operate on a permanent, rather than
pilot, basis.8 In light of the proposal to
make the LULD Plan permanent, the
Exchange amended Rule 7.12 to untie
the pilot’s effectiveness from that of the
LULD Plan and to extend the pilot’s
effectiveness to the close of business on
October 18, 2019.9 The Exchange then
filed to extend the pilot for an
additional year to the close of business
SR–CHX–2011–30; SR–EDGA–2011–31; SR–EDGX–
2011–30; SR–FINRA–2011–054; SR–ISE–2011–61;
SR–NASDAQ–2011–131; SR–NSX–2011–11; SR–
NYSE–2011–48; SR–NYSEAmex–2011–73; SR–
NYSEArca–2011–68; SR–Phlx–2011–129) (‘‘Pilot
Rules Approval Order’’).
5 The rules of the equity options exchanges
similarly provide for a halt in trading if the cash
equity exchanges invoke a MWCB Halt. See, e.g.,
NYSE Arca Rule 6.65–O(d)(4).
6 See Securities Exchange Act Release No. 67091
(May 31, 2012), 77 FR 33498 (June 6, 2012). The
LULD Plan provides a mechanism to address
extraordinary market volatility in individual
securities.
7 See Securities Exchange Act Release Nos. 67090
(May 31, 2012), 77 FR 33531 (June 6, 2012) (SR–
NSX–2011–11) (Approval Order); and 68779
(January 31, 2013), 78 FR 8638 (February 6, 2013)
(SR–NSX–2013–04) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change to Delay the
Operative Date of Rule 11.20A).
8 See Securities Exchange Act Release No. 85623
(April 11, 2019), 84 FR 16086 (April 17, 2019).
9 See Securities Exchange Act Release No. 85572
(April 9, 2019), 84 FR 15257 (April 15, 2019) (SR–
NYSENAT–2019–08).
E:\FR\FM\06OCN1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 191 (Wednesday, October 6, 2021)]
[Notices]
[Pages 55664-55669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21770]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93219; File No. SR-NASDAQ-2021-054]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Modify Nasdaq IM-5101-2 To Permit an
Acquisition Company To Contribute a Portion of Its Deposit Account to
Another Entity in a Spin-Off or Similar Corporate Transaction
September 30, 2021.
I. Introduction
On June 24, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to modify Nasdaq IM-5101-2 to
permit an acquisition company to contribute a portion of the amount
held in its deposit account to a deposit account of a new acquisition
company in a spin-off or similar corporate transaction. The proposed
rule change was published for comment in the Federal Register on July
13, 2021.\3\ On August 25, 2021, pursuant to Section 19(b)(2) of the
Act,\4\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\5\ This order institutes proceedings pursuant to
Section 19(b)(2)(B) of the Act \6\ to determine whether to approve or
disapprove 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. 92344 (July 7,
2021), 86 FR 36841 (``Notice''). Comments received on the proposal
are available on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2021-054/srnasdaq2021054.htm.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 92751, 86 FR 48780
(August 31, 2021). The Commission designated October 11, 2021 as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to approve or disapprove,
the proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
Generally, the Exchange will not permit the initial or continued
listing of a company that has no specific business plan or that has
indicated that its
[[Page 55665]]
business plan is to engage in a merger or acquisition with an
unidentified company or companies.\7\ However, the Exchange currently
will permit the listing of a company whose business plan is to complete
an initial public offering (``IPO'') and engage in a merger or
acquisition with one or more unidentified companies within a specific
period of time (``Acquisition Company'' or ``SPAC''), if the company
meets all applicable initial listing requirements, as well as certain
conditions described in Nasdaq IM-5101-2.\8\ Among other things, Nasdaq
IM-5101-2 requires that at least 90% of the gross proceeds from the IPO
and any concurrent sale by the Acquisition Company of equity securities
must be deposited in a trust account maintained by an independent
trustee, an escrow account maintained by an insured depository
institution, or in a separate bank account established by a registered
broker or dealer (collectively, a ``deposit account'').\9\ In addition,
Nasdaq IM-5101-2 requires that within 36 months of the effectiveness of
its IPO registration statement, or such shorter period that the
Acquisition Company specifies in its registration statement, the
Acquisition Company must complete one or more business combinations
having an aggregate fair market value of at least 80% of the value of
the deposit account (excluding any deferred underwriters fees and taxes
payable on the income earned on the deposit account) at the time of the
agreement to enter into the initial combination.\10\ Nasdaq IM-5101-2
further requires each business combination to be approved by a majority
of the Acquisition Company's independent directors.\11\ If the
Acquisition Company holds a shareholder vote on a business combination,
the business combination must be approved by a majority of the shares
of common stock voting at the meeting and public shareholders voting
against the business combination must have the right to convert their
shares of common stock into a pro rata share of the aggregate amount
then in the deposit account (net of taxes payable and amounts
distributed to management for working capital purposes) if the business
combination is approved and consummated.\12\ If a shareholder vote on a
business combination is not held, the Acquisition Company must provide
all shareholders with the opportunity to redeem all their shares for
cash equal to their pro rata share of the aggregate amount then in the
deposit account (net of taxes payable and amounts distributed to
management for working capital purposes), pursuant to Rule 13e-4 and
Regulation 14E under the Act, which regulate issuer tender offers.\13\
---------------------------------------------------------------------------
\7\ See Nasdaq IM-5101-2.
\8\ See id.
\9\ See Nasdaq IM-5101-2(a).
\10\ See Nasdaq IM-5101-2(b).
\11\ See Nasdaq IM-5101-2(c).
\12\ See Nasdaq IM-5101-2(d).
\13\ See Nasdaq IM-5101-2(e).
---------------------------------------------------------------------------
The Exchange now proposes to modify Nasdaq IM-5101-2 to allow a
SPAC listed under that rule to contribute a portion of its deposit
account to a deposit account of a new entity in a spin-off or similar
corporate transaction (``SpinCo SPAC''). According to the Exchange,
when a SPAC conducts its IPO, it raises the amount of capital that it
estimates will be necessary to finance a subsequent business
combination with its ultimate target; however, the Exchange believes
that because a SPAC cannot identify or select a specific target at the
time of its IPO, often the amount raised is not optimal for the needs
of a specific target.\14\ The Exchange states that it is proposing to
modify Nasdaq IM-5101-2 to permit what it believes is a more efficient
structure whereby a SPAC can raise in its IPO the maximum amount of
capital it anticipates it may need for a business combination
transaction and then ``rightsize'' itself by contributing any amounts
not needed to a SpinCo SPAC, which would be subject to the provisions
of Nasdaq IM-5101-2, in the same manner as the original SPAC, and spun
off to the original SPAC's shareholders.\15\
---------------------------------------------------------------------------
\14\ See Notice, supra note 3, at 36841. The Exchange further
states that ``[t]his has resulted in the inefficient, current
practice of SPAC sponsors creating multiple SPACs of different sizes
at the same time, with the intention to use the SPAC that is closest
in size to the amount a particular target needs.'' Id.
\15\ See id. The 36-month period to complete a business
combination under Nasdaq IM-5101-2 would, however, be calculated for
each SpinCo SPAC based on the date of the original SPAC's effective
registration statement.
---------------------------------------------------------------------------
Specifically, proposed Nasdaq IM-5101-2(f) would provide that a
SPAC will be permitted to contribute a portion of the amount held in
the deposit account to a deposit account of another entity (the
``Contribution'') in a spin-off or similar corporate transaction,
subject to the following conditions:
(i) The requirements set forth in Nasdaq IM-5101-2(d) and (e)
that shareholders of a SPAC must have the right to convert or redeem
their shares of common stock into a pro rata share of the aggregate
amount in the deposit account (net of taxes payable and amounts
distributed to management for working capital purposes) at the times
specified in such paragraphs may be based on the amounts in the
deposit account of the SPAC at such times after having been reduced
by the Contribution provided that, in connection with the
Contribution, the SPAC's public shareholders shall have had the
right, through one or more corporate transactions, to redeem a
portion of their shares of common stock (or, if units were sold in
the SPAC's IPO, units) for their pro rata portion of the amount of
the Contribution in lieu of being entitled to receive shares or
units in the SpinCo SPAC;
(ii) the public shareholders of the SPAC receive shares or units
of the SpinCo SPAC on a pro rata basis, except to the extent they
have elected to redeem a portion of their shares of the SPAC in lieu
of being entitled to receive shares or units in the SpinCo SPAC;
(iii) the amount distributed to the SpinCo SPAC will remain in a
deposit account for the benefit of the shareholders of the SpinCo
SPAC in the same manner as described in Nasdaq IM-5101-2(a);
(iv) the SpinCo SPAC meets all applicable initial listing
requirements, as well as the conditions described in Nasdaq IM-5101-
2(a) through (e); it being understood that, following such spin-off
or similar corporate transaction: (A) For purposes of Nasdaq IM-
5101-2(b) the 80% described therein shall,\16\ in the case of the
SPAC, be calculated based on the aggregate amount remaining in the
deposit account of the SPAC at the time of the agreement to enter
into the initial combination after the Contribution to the SpinCo
SPAC, and, in the case of the SpinCo SPAC, be calculated based on
the aggregate amount in its deposit account at the time of its
agreement to enter into its initial combination,\17\ and (B) for
purposes of Nasdaq IM-5101-2(d) and (e),\18\ the right to convert
and opportunity to redeem shares of common stock on a pro rata
basis, respectively, shall, in the case of the SPAC, be deemed to
apply to the aggregate amount remaining in the deposit account of
the SPAC after the contribution to the SpinCo SPAC, and, in the case
of the SpinCo SPAC, be deemed to apply to the aggregate amount in
its deposit account;
---------------------------------------------------------------------------
\16\ See supra note 10 and accompanying text, for a description
of the requirements of Nasdaq IM-5101-2(b).
\17\ As the Exchange states, this amount would be calculated
after giving effect to the SpinCo SPAC's contribution to a
subsequent SpinCo SPAC, if any. See Notice, supra note 3, at 36842.
\18\ See supra notes 12-13 and accompanying text, for a
description of the requirements of Nasdaq IM-5101-2(d) and (e).
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(v) in the case of the SpinCo SPAC, and any additional entities
spun off from the SpinCo SPAC, each of which will also be considered
a SpinCo SPAC, the 36-month period described in Nasdaq IM-5101-2(b)
(or such shorter period that the original SPAC specifies in its
registration statement) will be calculated based on the date of
effectiveness of the SPAC's IPO registration statement; and
(vi) in the aggregate, through one or more opportunities by the
SPAC and one or more SpinCo SPACs, public shareholders will have the
ability to convert or redeem shares, or receive amounts upon
liquidation, for the full
[[Page 55666]]
amount of the deposit account established by the SPAC as described
in Nasdaq IM-5101-2(a) (excluding any deferred underwriters fees and
taxes payable on the income earned on the deposit account).\19\
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\19\ Proposed Nasdaq IM-5101-2(f) provides that the conditions
set forth in the proposed rule would similarly apply to successive
spin-offs or similar corporate transactions, ``mutatis mutandis.''
The Exchange states that, under the proposal, it expects that the
new structure will be implemented in the following manner. If a listed
SPAC (the ``Original SPAC'') determines that it will not need all the
cash in its deposit account for its initial business combination, the
Original SPAC will designate the excess cash for a new deposit account
of a SpinCo SPAC (the ``SpinCo Deposit Account,'' and the amount
retained in the deposit account of the Original SPAC, the ``Retained
SPAC Deposit Account'').\20\ The Exchange states that the amount
designated for the SpinCo Deposit Account must continue to be held for
the benefit of the shareholders of the Original SPAC until the
completion of the spin-off transaction and, following the spin-off of
the SpinCo SPAC to the Original SPAC's shareholders, the SpinCo Deposit
Account would be subject to the same requirements as the deposit
account of the Original SPAC.\21\
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\20\ See Notice, supra note 3, at 36841-42.
\21\ See id. at 36842.
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According to the Exchange, the SpinCo SPAC would file a
registration statement under the Securities Act of 1933 for purposes of
effecting the spin-off of the SpinCo SPAC and, prior to the
effectiveness of the registration statement, the Original SPAC would
provide its public shareholders through one or more corporate
transactions with the opportunity to redeem a pro rata amount of their
holdings equal to the amount of the SpinCo Deposit Account divided by
the per share amount in the Original SPAC's deposit account (the
``redemption price'').\22\ The Exchange further states that, after
completing the tender offer for the redemption and the effectiveness of
the SpinCo SPAC's registration statement, the Original SPAC would
contribute the SpinCo Deposit Account to a deposit account held by the
SpinCo SPAC in exchange for shares or units of the SpinCo SPAC, which
the Original SPAC would then distribute to its public shareholders on a
pro rata basis through one or more corporate transactions pursuant to
the SpinCo SPAC's effective registration statement.\23\
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\22\ See id. According to the Exchange, the redemption could
occur, for example, through a partial cash tender offer for shares
of the Original SPAC pursuant to Rule 13e-4 and Regulation 14E of
the Act, and the redemption may be of a separate class of shares
distributed to unitholders of the Original SPAC for the purpose of
facilitating the redemption. See id. at 36842 n.4.
\23\ See id. at 36842.
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According to the Exchange, the Original SPAC would then continue to
operate as a SPAC until it completes its business combination and would
offer redemption rights to its public shareholders in connection with
that business combination in the same manner as a traditional SPAC,
while the SpinCo SPAC would operate in the same manner as a traditional
SPAC, except that it could effect a subsequent spin-off prior to its
business combination like the Original SPAC.\24\ The Exchange states
that if SpinCo SPAC does not elect to effect a spin-off, it would
proceed to complete an initial business combination and offer
redemption rights in connection therewith like a traditional SPAC.\25\
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\24\ See id. The proposed rule would provide that, for purposes
of Nasdaq IM-5101-2(b), the Original SPAC must complete one or more
business combinations with an aggregate fair market value of at
least 80% of the aggregate amount remaining in the Retained SPAC
Deposit Account, after the contribution to the SpinCo SPAC, at the
time of its agreement to enter into its initial combination. Nasdaq
further states that, similarly, a SpinCo SPAC must complete one or
more business combinations with an aggregate fair market value of at
least 80% of the aggregate amount remaining in the SpinCo Deposit
Account at the time of its agreement to enter into its initial
combination after giving effect to its contribution to any
subsequent SpinCo SPAC.
\25\ See id.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2021-054 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \26\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved.
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\26\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\27\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with the Act and, in
particular, with Section 6(b)(5) of the Act, which requires, among
other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and
to protect investors and the public interest, and not be designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers.\28\
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\27\ Id.
\28\ 15 U.S.C. 78f(b)(5).
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As described above, the proposal would allow a SPAC listed under
Nasdaq IM-5101-2 to contribute a portion of the amount held in its
deposit account to the deposit account of a SpinCo SPAC. The Exchange
states that the proposal would permit a more efficient structure
because a SPAC often raises an amount of capital through its IPO that
is not optimal for the needs of a specific acquisition target.\29\
According to the Exchange, this has resulted in SPAC sponsors creating
multiple SPACs of different sizes at the same time, with the intention
to use the SPAC that is closest in size to the amount a particular
acquisition target needs.\30\ The Exchange believes this practice
creates the potential for conflicts of interest, fails to optimize the
amount of capital that would benefit the SPAC's public shareholders and
a business combination target, creates inefficiencies, and can lead to
confusion.\31\ Accordingly, the Exchange believes the proposal would
provide shareholders the opportunity to invest with a sponsor without
spreading that investment across the sponsor's multiple SPACs.\32\
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\29\ See Notice, supra note 3, at 36841.
\30\ See id.
\31\ See id.
\32\ See id. at 36842.
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The Commission received comments broadly supporting the proposed
rule change. Specifically, one commenter stated that the proposed rule
change would introduce a ``more efficient, cost-effective[,] and
flexible'' structure than provided for by the current SPAC listing
rules, ``while continuing to offer significant and appropriate
protections to SPAC investors.'' \33\ This commenter further argued
that shareholders' ability under the proposed rule change to redeem
their investment in connection with each specific business combination
by the Original SPAC or a SpinCo SPAC would both increase flexibility
and
[[Page 55667]]
investors' ability to understand the companies that a SPAC plans to
acquire and the risks associated with each such target company.\34\
Another commenter similarly argued that the proposed rule change would
permit a more efficient SPAC structure while ``maintaining all of the
investor protections'' in the current SPAC listing rules.\35\
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\33\ See letter from Kellen Carter, ARK Investment Management
LLC, to Vanessa Countryman, Secretary, Commission, dated August 2,
2021, at 1-2.
\34\ See id. at 2.
\35\ See letter from White & Case LLP to Vanessa Countryman,
Secretary, Commission, dated August 3, 2021, at 1.
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The Commission has concerns, however, about whether the proposal is
sufficiently designed to protect investors and the public interest, as
required by Section 6(b)(5) of the Act. First, the Commission is
concerned that proposed Nasdaq IM-5101-2(f) would circumvent the
current requirements of Nasdaq IM-5101-2 that the Commission previously
found were designed to protect investors.\36\ Specifically, Nasdaq IM-
5101-2(b) requires a SPAC to complete one or more business combinations
having an aggregate fair market value of at least 80% of the value of
the deposit account.\37\ This 80% requirement sets a minimum size of a
business combination that investors will be aware of from their initial
investment. In addition, the 80% requirement ensures that the founders
of the SPAC will not seek a very small SPAC target solely to ensure
they successfully complete a business combination in order to break
escrow and thereby earn their payment (promote) for finding a target.
The proposal could potentially allow a SPAC to engage in multiple
business combinations that are very small in size as compared to the
original amount in the deposit account. The proposal also does not
include any limitations with respect to the amount a SPAC may
contribute to a SpinCo SPAC and thereby reduce its escrow account.
Moreover, it appears the proposed structure could potentially
incentivize SPAC founders to complete smaller business combinations in
cases where they cannot identify a target company of sufficient size to
meet the 80% requirement with respect to the Original SPAC, thereby
leaving investors with a choice of whether to accept an investment in a
smaller-sized company than originally contemplated or a partial
redemption of their original investment from the reduced deposit
account. The Commission is concerned that allowing SPACs to engage in
such transactions effectively eliminates the original 80% requirement,
may subvert investor expectations regarding a SPAC's future business
combination prospects, and may benefit the founders of SPACs at the
expense of retail investors.\38\ In this regard, the Commission is
concerned that the Exchange has not provided sufficient justification
regarding how its proposal is consistent with the protection of
investors, including the investor protection measures that were
originally contemplated by Nasdaq IM-5101-2 and which the Commission
found to be consistent with the Act.\39\
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\36\ See Securities Exchange Act Release No. 58228 (July 25,
2008), 73 FR 44794 (July 31, 2008) (Order Granting Approval to
Proposed Rule Change, as modified by Amendment No. 1, to Adopt
Additional Initial Listing Standards to list Securities of Special
Purpose Acquisition Companies) (NASDAQ-2008-013) (``2008 Order'').
\37\ The deposit account must contain at least 90% of the gross
proceeds from the SPAC's IPO and any concurrent sale by the SPAC of
equity securities. See Nasdaq IM-5101-2(a).
\38\ Moreover, the proposal does not appear to be limited to
future SPACs and could potentially allow existing SPACs to engage in
spin-offs. The Commission believes that permitting existing SPACs to
engage in such transactions could raise investor protection issues
given that investors who initially invested in the SPACs would not
have been aware that the SPAC would not have to comply with the 80%
requirement and could spin off into multiple SpinCo SPACs.
\39\ See 2008 Order, supra note 28. In addition, the proposal
appears to require redeeming shareholders to effectively pay
deferred underwriting fees by deducting those fees from the
aggregate redemption amount available to shareholders. See proposed
Nasdaq IM-5101-2(f)(vi). This is not required for the Original SPAC
as set forth under current Nasdaq IM-5101-2(d) and (e) and would
result in the redeeming shareholders potentially receiving less than
90% of the gross proceeds from the deposit account. Under the
current SPAC listing rules, only taxes payable and amounts
distributed to management for working capital purposes can be
excluded from the aggregate amount in the deposit account.
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Furthermore, the Commission believes the proposal could introduce
additional complexity to SPAC securities, particularly for retail
investors. While the market in SPAC securities is already complex, the
Exchange's proposal would allow for the listing of SPACs that may spin-
off into smaller and smaller SPACs, each presenting additional risks
and considerations to investors that may not be fully realized at the
time of the Original SPAC's IPO or at the time of each spin-off
transaction when investors have the opportunity to receive shares in
the SpinCo SPAC or redeem their pro-rata portion of the SpinCo SPAC
Contribution.\40\ Further, although the Exchange states the proposal is
expected to allow a SPAC that determines that it will have excess cash
following its initial business combination to spin-off those funds to a
new SPAC,\41\ the proposal is not limited to this particular situation
and would allow a SPAC to break escrow to create new SpinCo SPACs at
any time after its IPO, regardless of whether any potential business
combination has been identified.\42\ Moreover, under current SPAC
rules, investors have to make one determination on whether to redeem
their shares or retain ownership in the combined operating business
after a business combination that has an aggregate fair market value of
at least 80% of the value of the deposit account. In contrast, under
the proposal, investors would have to make multiple decisions on
whether to hold or redeem their securities in potentially multiple
SpinCo SPACs, and those investors that choose to redeem may not be made
whole as to their original investment until a subsequent business
combination of the Original SPAC and/or the SpinCo SPACs occur.
Additionally, the proposal raises concerns about whether investors are
adequately protected when only the sponsors, not shareholders, are
participating in the decision to reduce the deposit account and
contribute those funds to the SpinCo SPAC.\43\ For these reasons, the
Commission is concerned that investors may not have adequate
information at the time they initially invest in the Original SPAC and
at the time they are required to make decisions regarding whether to
invest in the SpinCo SPACs or to redeem their investment, which can
occur multiple times over the term of the Original SPAC, raising
investor protection concerns under Section 6(b)(5) of the Act.
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\40\ For example, under the proposal it would be difficult for
an investor to know at the time of its investment in the Original
SPAC (or at the time of each contribution) whether there will be
future contributions to SpinCos, and, if so, how much the original
escrow will be reduced and how much will be left for the Original
SPAC's business combination. The Commission believes such
information would be important to investors in making informed
investment decisions in the Original SPAC.
\41\ See Notice, supra note 3, at 36841-42.
\42\ The proposal also does not include any timing limitations
with respect to when a SPAC may engage in a contribution and spin-
off. As such, it appears that a contribution and spin-off could
occur very close to the end of the 36-month period within which the
Original SPAC and any SpinCo SPAC has to complete its business
combination. This raises investor protection issues since
shareholders may not have enough time to review disclosures before a
vote or redemption decision is required.
\43\ In these situations, the SpinCo SPAC may be structured
completely differently than was disclosed at the time of the
investment in the Original SPAC. For example, nothing in the
proposal prevents the SpinCo SPAC from having a different target
industry or business than the Original SPAC, different compensation
arrangements than the Original SPAC, or different terms than
disclosed in the Original SPAC registration statement.
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The Commission is also concerned that certain aspects of the
proposed rule change are vague and unclear and may raise additional
investor protection
[[Page 55668]]
concerns. For example, proposed Nasdaq IM-5101-2(f)(i) would provide
shareholders the right to redeem, ``through one or more corporate
transactions,'' their pro rata portion of the SPAC's contribution to a
SpinCo SPAC's deposit account. In addition, proposed Nasdaq IM-5101-
2(f)(vi) provides that public shareholders will have the ability to
convert or redeem shares, or receive amounts upon liquidation, for the
full amount of the deposit account ``through one or more
opportunities.'' The proposal, however, does not set forth any specific
requirements applicable to the redemption or conversion opportunities
with respect to the contribution to a SpinCo SPAC or specify what would
qualify as an acceptable corporate transaction for purposes of a
redemption.\44\ Moreover, the proposed rule states that a SPAC will be
permitted to contribute a portion of the amount held in the deposit
account to a deposit account of ``another entity'' in a spin-off ``or
similar corporate transaction.'' However, the proposal does not specify
whether there are any limitations on the types of entities that may
receive the contribution, including whether such entities could include
an already existing SPAC, or what would constitute a ``similar
transaction.'' The Commission is concerned that the lack of clarity and
vagueness in the proposed rule text may cause confusion amongst market
participants regarding the scope of the proposal and what is required
under the proposed rules.
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\44\ The Exchange states that a redemption could occur, for
example, through a partial cash tender offer for shares of the
Original SPAC pursuant to Rule 13e-4 and Regulation 14E of the Act,
and the redemption may be of a separate class of shares distributed
to unitholders of the Original SPAC for the purpose of facilitating
the redemption. See Notice, supra note 3, at 36842 n.4. On the other
hand, Nasdaq IM-5101-2 currently includes very specific requirements
relating to redemption rights of public shareholders with respect to
a business combination. See Nasdaq IM-5101-2(d)-(e).
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In addition, the Exchange has proposed that the conditions
described in proposed Nasdaq IM-5101-2(f) shall apply to successive
spin-offs or similar corporate transactions, ``mutatis mutandis.'' The
Exchange provides no specificity or detail as to what this means or
what factors the Exchange would consider when determining how to apply
the proposed rule to successive spin-offs or similar corporate
transactions. As drafted, the rule text would appear to give the
Exchange broad discretion to apply the proposed rule in a different
manner with respect to successive spin-offs or transactions to
different SPAC issuers. It is also difficult for the Commission to
assess whether the proposal is consistent with Section 6(b)(5) of the
Act if the Exchange could simply change how the rule applies to fit a
particular transaction by invoking its discretion through the proposed
``mutatis mutandis'' language. The Commission believes this lack of
transparency and objectivity in the proposed rule raises investor
protection and unfair discrimination concerns under the Act because
market participants may be confused about what is permitted under the
rules and the Exchange may elect to apply its rules in an inconsistent
and discriminatory manner.
Accordingly, the Commission believes there are questions as to
whether the proposal is consistent with Section 6(b)(5) of the Act and
its requirements, among other things, that the rules of a national
securities exchange be designed to protect investors and the public
interest, and not be designed to permit unfair discrimination.
Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations issued thereunder . . . is on the
self-regulatory organization that proposed the rule change.'' \45\ The
description of a proposed rule change, its purpose and operation, its
effect, and a legal analysis of its consistency with applicable
requirements must all be sufficiently detailed and specific to support
an affirmative Commission finding,\46\ and any failure of a self-
regulatory organization to provide this information may result in the
Commission not having a sufficient basis to make an affirmative finding
that a proposed rule change is consistent with the Exchange Act and the
applicable rules and regulations.\47\
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\45\ 17 CFR 201.700(b)(3).
\46\ See id.
\47\ See id.
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For these reasons, the Commission believes it is appropriate to
institute proceedings pursuant to Section 19(b)(2)(B) of the Act \48\
to determine whether the proposal should be approved or disapproved.
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\48\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) \49\ of the Act or any other provision
of the Act, or the rules and regulations thereunder. Although there do
not appear to be any issues relevant to approval or disapproval that
would be facilitated by an oral presentation of views, data, and
arguments, the Commission will consider, pursuant to Rule 19b-4 under
the Act,\50\ any request for an opportunity to make an oral
presentation.\51\
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\49\ 15 U.S.C. 78f(b)(5).
\50\ 17 CFR 240.19b-4.
\51\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by October 27, 2021. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
November 10, 2021. The Commission asks that commenters address the
sufficiency of the Exchange's statements in support of the proposal,
which are set forth in the Notice,\52\ in addition to any other
comments they may wish to submit about the proposed rule change.
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\52\ See supra note 3.
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Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2021-054 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2021-054. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements
[[Page 55669]]
with respect to the proposed rule change that are filed with the
Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2021-054 and should be submitted
by October 27, 2021. Rebuttal comments should be submitted by November
10, 2021.
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\53\ 17 CFR 200.30-3(a)(57).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\53\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21770 Filed 10-5-21; 8:45 am]
BILLING CODE 8011-01-P
