Self-Regulatory Organizations; New York Stock Exchange LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend the Requirements of Section 102.06 of the NYSE Listed Company Manual To Allow an Acquisition Company To Contribute a Portion of Its Trust Account to a New Acquisition Company and Spin-Off the New Acquisition Company to Its Shareholders, 70150-70155 [2021-26625]
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70150
Federal Register / Vol. 86, No. 234 / Thursday, December 9, 2021 / Notices
Vessel Code (B&PV Code); and the rules
of the ASME ‘‘Code for Operation and
Maintenance of Nuclear Power Plants’’
(OM Code). These rules of the ASME
B&PV and OM Codes set forth the
requirements to which nuclear power
plant components are designed,
constructed, tested, repaired, and
inspected. Section 50.55a(z) of 10 CFR
allows applicants to use alternatives to
the requirements of 10 CFR 50.55a
paragraphs (b) through (h) when
authorized by the NRC. To facilitate
licensees’ requests for alternatives to the
requirements in the above regulations,
the NRC is providing an optional online
form to submit the required information
for a specific alternative request under
10 CFR 50.55a(z).
Dated: December 6, 2021.
For the Nuclear Regulatory Commission.
David C. Cullison,
NRC Clearance Officer, Office of the Chief
Information Officer.
[FR Doc. 2021–26646 Filed 12–8–21; 8:45 am]
BILLING CODE 7590–01–P
POSTAL REGULATORY COMMISSION
[Docket Nos. MC2022–28 and CP2022–31]
New Postal Product
Postal Regulatory Commission.
Notice.
AGENCY:
ACTION:
The Commission is noticing a
recent Postal Service filing for the
Commission’s consideration concerning
a negotiated service agreement. This
notice informs the public of the filing,
invites public comment, and takes other
administrative steps.
DATES: Comments are due: December
13, 2021.
ADDRESSES: Submit comments
electronically via the Commission’s
Filing Online system at https://
www.prc.gov. Those who cannot submit
comments electronically should contact
the person identified in the FOR FURTHER
INFORMATION CONTACT section by
telephone for advice on filing
alternatives.
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
khammond on DSKJM1Z7X2PROD with NOTICES
David A. Trissell, General Counsel, at
202–789–6820.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Docketed Proceeding(s)
to negotiated service agreement(s). The
request(s) may propose the addition or
removal of a negotiated service
agreement from the market dominant or
the competitive product list, or the
modification of an existing product
currently appearing on the market
dominant or the competitive product
list.
Section II identifies the docket
number(s) associated with each Postal
Service request, the title of each Postal
Service request, the request’s acceptance
date, and the authority cited by the
Postal Service for each request. For each
request, the Commission appoints an
officer of the Commission to represent
the interests of the general public in the
proceeding, pursuant to 39 U.S.C. 505
(Public Representative). Section II also
establishes comment deadline(s)
pertaining to each request.
The public portions of the Postal
Service’s request(s) can be accessed via
the Commission’s website (https://
www.prc.gov). Non-public portions of
the Postal Service’s request(s), if any,
can be accessed through compliance
with the requirements of 39 CFR
3011.301.1
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
with the policies of title 39. For
request(s) that the Postal Service states
concern market dominant product(s),
applicable statutory and regulatory
requirements include 39 U.S.C. 3622, 39
U.S.C. 3642, 39 CFR part 3030, and 39
CFR part 3040, subpart B. For request(s)
that the Postal Service states concern
competitive product(s), applicable
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3035, and
39 CFR part 3040, subpart B. Comment
deadline(s) for each request appear in
section II.
II. Docketed Proceeding(s)
1. Docket No(s).: MC2022–28 and
CP2022–31; Filing Title: USPS Request
to Add Priority Mail & First-Class
Package Service Contract 212 to
Competitive Product List and Notice of
Filing Materials Under Seal; Filing
Acceptance Date: December 3, 2021;
Filing Authority: 39 U.S.C. 3642, 39 CFR
3040.130 through 3040.135, and 39 CFR
3035.105; Public Representative:
Christopher C. Mohr; Comments Due:
December 13, 2021.
I. Introduction
The Commission gives notice that the
Postal Service filed request(s) for the
Commission to consider matters related
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1 See Docket No. RM2018–3, Order Adopting
Final Rules Relating to Non-Public Information,
June 27, 2018, Attachment A at 19–22 (Order No.
4679).
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This Notice will be published in the
Federal Register.
Erica A. Barker,
Secretary.
[FR Doc. 2021–26661 Filed 12–8–21; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93714; File No. SR–NYSE–
2021–42]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change To Amend the
Requirements of Section 102.06 of the
NYSE Listed Company Manual To
Allow an Acquisition Company To
Contribute a Portion of Its Trust
Account to a New Acquisition
Company and Spin-Off the New
Acquisition Company to Its
Shareholders
December 3, 2021.
I. Introduction
On August 23, 2021, 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’’ or ‘‘Exchange Act’’) 1 and
Rule 19b–4 thereunder,2 a proposed rule
change to amend the requirements of
Section 102.06 of the NYSE Listed
Company Manual (‘‘Manual’’) to allow
an acquisition company to contribute a
portion of the amount held in its trust
account to a trust account of a new
acquisition company and spin off the
new acquisition company to its
shareholders in certain situations. The
proposed rule change was published for
comment in the Federal Register on
September 8, 2021.3 On September 30,
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
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 92839
(September 1, 2021), 86 FR 50408 (‘‘Notice’’).
Comments received on the proposal are available on
the Commission’s website at: https://www.sec.gov/
comments/sr-nyse-2021-42/srnyse202142.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 93222,
86 FR 55671 (October 6, 2021). The Commission
designated December 7, 2021 as the date by which
the Commission shall approve or disapprove, or
2 17
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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.
khammond on DSKJM1Z7X2PROD with NOTICES
II. Description of the Proposed Rule
Change
In 2008, the Exchange adopted a rule
to allow companies that have no prior
operating history and that have
indicated their business plan is to
consummate a business combination
with one or more operating businesses
or assets (‘‘Business Combination’’) 7 to
list on the Exchange if they meet all
applicable initial listing requirements,
as well as additional conditions
designed to provide investor protections
to address specific concerns about the
structure of such companies
(‘‘Acquisition Companies’’ or ‘‘ACs’’).8
These additional conditions generally
require, among other things, that at least
90% of the proceeds from the initial
public offering (‘‘IPO’’) and any
concurrent sale of the AC’s equity
securities be held in a trust account
controlled by an independent custodian
and that the AC complete within three
years (or such shorter period specified
by the AC’s constitutive documents or
by contract) a Business Combination
having a fair market value of at least
80% of the net assets held in the trust
account at the time of the agreement to
enter into the initial combination (net of
amounts disbursed to management for
working capital purposes and excluding
the amount of any deferred
underwriting discount held in trust).9
Section 102.06 of the Manual further
requires that each Business
Combination be approved by a majority
of the AC’s independent directors.10 If
the AC holds a shareholder vote on a
Business Combination, the Business
Combination must be approved by a
majority of the votes cast 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 on deposit in
the trust account (net of taxes payable
institute proceedings to determine whether to
approve or disapprove, the proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 Section 102.06 of the Manual provides that a
Business Combination may be 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.
8 See Securities Exchange Act Release No. 57785
(May 6, 2008), 73 FR 27597 (May 13, 2008) (SR–
NYSE–2008–17) (‘‘2008 Order’’). See also Section
102.06 of the Manual. Acquisition Companies are
also known as ‘‘Special Purpose Acquisition
Companies’’ or ‘‘SPACs.’’
9 See Section 102.06 of the Manual.
10 See Section 102.06(d) of the Manual.
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and amounts distributed to management
for working capital purposes) if the
Business Combination is approved and
consummated.11 If a shareholder vote
on a Business Combination is not held,
the AC 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.12
The Exchange now proposes to
modify Section 102.06 of the Manual to
allow an AC listed under that rule to
contribute a portion of the amount held
in its trust account to the trust account
of a new entity in a spin-off or similar
corporate transaction (‘‘SpinCo AC’’).
According to the Exchange, when an AC
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 an AC 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.13 The Exchange states that it is
proposing to modify Section 102.06 of
the Manual to permit what it believes is
a more efficient structure whereby an
AC 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 AC, which would be subject
to the provisions of Section 102.06, in
the same manner as the original AC, and
spun off to the original AC’s
shareholders.14
Specifically, proposed Section 102.06
of the Manual would provide that an AC
will be permitted to contribute (the
‘‘Contribution’’) in a spin-off or similar
corporate transaction a portion of the
amount held in the AC’s trust account
to a trust account of another entity as
provided below:
(i) In connection with the
Contribution, each AC public
shareholder has the right, through one
11 See
Section 102.06(a) and (b) of the Manual.
Section 102.06(c) of the Manual.
13 See Notice, supra note 3, at 50409. The
Exchange further states that ‘‘[t]his has resulted in
the inefficient, current practice of AC sponsors
creating multiple ACs of different sizes at the same
time, with the intention to use the AC that is closest
in size to the amount a particular target needs.’’ Id.
14 See id. The three-year period to complete a
Business Combination under Section 102.06 of the
Manual would, however, be calculated for each
SpinCo AC based on the date of the original AC’s
effective registration statement.
12 See
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70151
or more corporate transactions, to
redeem a portion of its shares of
common stock or units, as applicable,
for its pro rata portion of the amount of
the Contribution in lieu of being entitled
to receive shares or units in the SpinCo
AC;
(ii) the requirement of Section 102.06
of the Manual that the AC provide each
public shareholder voting against a
Business Combination with the 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, will be considered
satisfied by pro rata distribution to such
shareholders of the amounts in the trust
account after having been reduced by
the Contribution;
(iii) the public shareholders of the AC
receive shares or units of the SpinCo AC
on a pro rata basis, except to the extent
they have elected to redeem a portion of
their shares of the AC in lieu of being
entitled to receive shares or units in the
SpinCo AC;
(iii) 15 the Contribution will remain in
a trust account for the benefit of the
shareholders of the SpinCo AC in the
manner required for ACs listed under
Section 102.06 of the Manual;
(iv) the SpinCo AC meets all
applicable initial listing requirements
for an AC listing in connection with an
initial public offering under Section
102.06 of the Manual; it being
understood that, following such spin-off
or similar corporate transaction:
(A) The 80% described in the first
paragraph of Section 102.06 16 shall, in
the case of the AC, be calculated based
on the aggregate amount remaining in
the trust account of the AC at the time
of the agreement to enter into the
Business Combination as reduced by the
Contribution, and, in the case of the
SpinCo AC, be calculated based on the
aggregate amount in its trust account at
the time of its agreement to enter into
a Business Combination, and
(B) the right to convert and
opportunity to redeem shares of
common stock on a pro rata basis
required for ACs listed under Section
102.06 of the Manual shall, in the case
of the AC, be deemed to apply to the
aggregate amount remaining in the trust
account of the AC after the Contribution
to the SpinCo AC, and, in the case of the
15 The Exchange’s proposed rule mistakenly
includes two paragraphs numbered Section
102.06(iii).
16 See supra note 9 and accompanying text, for a
description of the requirements of Section 102.06 of
the Manual.
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Federal Register / Vol. 86, No. 234 / Thursday, December 9, 2021 / Notices
SpinCo AC, be deemed to apply to the
aggregate amount in its trust account;
(v) in the case of the SpinCo AC, and
any additional entities spun off from the
SpinCo AC, each of which will also be
considered a SpinCo AC, the three-year
period (or such shorter period specified
by the AC’s constitutive documents or
by contract) within which a listed AC
must consummate its Business
Combination under Section 102.06 of
the Manual will be calculated based on
the date of effectiveness of the AC’s IPO
registration statement; and
(vi) in the aggregate, through one or
more opportunities by the AC and one
or more SpinCo ACs, public
shareholders will have the ability to
convert or redeem shares, or receive
amounts upon liquidation, for the full
amount of the trust account established
by the AC as described in the first
paragraph of Section 102.06 of the
Manual (excluding any deferred
underwriters fees and taxes payable on
the income earned on the trust account).
The Exchange states that, under the
proposal, it expects that the new
structure will be implemented in the
following manner. If a listed AC (the
‘‘Original AC’’) determines that it will
not need all the cash in its trust account
for its initial Business Combination, the
Original AC will designate the excess
cash for a new trust account of a SpinCo
AC that will be spun off to Original AC’s
shareholders.17 The Exchange states that
the amount designated for the SpinCo
trust account must continue to be held
for the benefit of the shareholders of the
Original AC until the completion of the
spin-off transaction and, following the
spin-off of the SpinCo AC to the
Original AC’s shareholders, the SpinCo
trust account would be subject to the
same requirements as the trust account
of the Original AC.18
According to the Exchange, the
SpinCo AC would file a registration
statement under the Securities Act of
1933 for purposes of effecting the spinoff of the SpinCo AC and, prior to the
effectiveness of the registration
statement, the Original AC 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 trust account
divided by the per share amount in the
Original AC’s trust account.19 The
17 See
Notice, supra note 3, at 50409.
id.
19 See id. According to the Exchange, the
redemption could occur, for example, through a
partial cash tender offer for shares of the Original
AC pursuant to Rule 13e–4 and Regulation 14E
under the Act, and the redemption may be of a
separate class of shares distributed to unitholders
18 See
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Exchange further states that, after
completing the tender offer for the
redemption and the effectiveness of the
SpinCo AC’s registration statement, the
Original AC would contribute the
SpinCo trust account to a trust account
held by the SpinCo AC in exchange for
shares or units of the SpinCo AC, which
the Original AC would then distribute to
its public shareholders on a pro rata
basis through one or more corporate
transactions pursuant to the SpinCo
AC’s effective registration statement.20
According to the Exchange, the
Original AC would then continue to
operate as an AC 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 AC, while the
SpinCo AC would operate in the same
manner as a traditional AC, except that
it could effect a subsequent spin-off
prior to its Business Combination like
the Original AC.21 The Exchange states
that if SpinCo AC does not elect to effect
a spin-off, it would either (i) proceed to
complete an initial Business
Combination and offer redemption
rights in connection therewith like a
traditional AC, or (ii) liquidate.22
Finally, the Exchange proposes to
amend the subsection of Section
802.01B of the Manual setting forth the
continued listing criteria applicable to
ACs to specify that those criteria would
also be applicable in their entirety to
SpinCo ACs. In addition, the Exchange
proposes to add a new subsection to
Section 102.06 of the Manual stating
that the applicable continued listing
criteria for both ACs and SpinCo ACs
would be set forth in Section 802.01B of
the Manual.
III. Proceedings To Determine Whether
To Approve or Disapprove SR–NYSE–
2021–42 and Grounds for Disapproval
Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 23 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
of the Original AC for the purpose of facilitating the
redemption. See id. at 50409 n.5.
20 See id. at 50409.
21 See id.
22 See id.
23 15 U.S.C. 78s(b)(2)(B).
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conclusions with respect to any of the
issues involved.
Pursuant to Section 19(b)(2)(B) of the
Act,24 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.25
As described above, the proposal
would allow an AC listed under Section
102.06 of the Manual to contribute a
portion of the amount held in its trust
account to the trust account of a SpinCo
AC. The Exchange states that the
proposal would permit a more efficient
structure because an AC often raises an
amount of capital through its IPO that
is not optimal for the needs of a specific
acquisition target.26 According to the
Exchange, this has resulted in AC
sponsors creating multiple ACs of
different sizes at the same time, with the
intention to use the AC that is closest in
size to the amount a particular
acquisition target needs.27 The
Exchange believes this practice creates
the potential for conflicts of interest,
fails to optimize the amount of capital
that would benefit the AC’s public
shareholders and a Business
Combination target, creates
inefficiencies, and can lead to
confusion.28 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 ACs.29
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.
24 Id.
25 15
U.S.C. 78f(b)(5).
Notice, supra note 3, at 50409.
27 See id.
28 See id.
29 See id. at 50410.
26 See
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First, the Commission is concerned that
the proposed amendments to Section
102.06 of the Manual would circumvent
the current requirements of Section
102.06 that the Commission previously
found were designed to protect
investors.30 Specifically, Section 102.06
of the Manual requires an AC to
complete one or more Business
Combinations having a fair market value
equal to at least 80% of the net assets
held in trust.31 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 AC will
not seek a very small AC 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 an AC
to engage in multiple Business
Combinations that are very small in size
as compared to the original amount in
the trust account. The proposal also
does not include any limitations with
respect to the amount an AC may
contribute to a SpinCo AC and thereby
reduce its escrow account. Moreover, it
appears the proposed structure could
potentially incentivize AC 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
AC, 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
ACs to engage in such transactions
effectively eliminates the original 80%
requirement, may subvert investor
expectations regarding an AC’s future
Business Combination prospects, and
may benefit the founders of ACs at the
expense of retail investors.32 In this
regard, the Commission is concerned
that the Exchange has not provided
sufficient justification regarding how its
30 See
2008 Order, supra note 8.
trust account must contain at least 90% of
the proceeds from the AC’s IPO and any concurrent
sale by the AC of equity securities. See Section
102.06 of the Manual.
32 Moreover, the proposal does not appear to be
limited to future ACs and could potentially allow
existing ACs to engage in spin-offs. The
Commission believes that permitting existing ACs
to engage in such transactions could raise investor
protection issues given that investors who initially
invested in the ACs would not have been aware that
the AC would not have to comply with the 80%
requirement and could spin off into multiple
SpinCo ACs.
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31 The
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proposal is consistent with the
protection of investors, including the
investor protection measures that were
originally contemplated by Section
102.06 of the Manual and which the
Commission found to be consistent with
the Act.33
Furthermore, the Commission
believes the proposal could introduce
additional complexity to AC securities,
particularly for retail investors. While
the market in AC securities is already
complex, the Exchange’s proposal
would allow for the listing of ACs that
may spin-off into smaller and smaller
ACs, each presenting additional risks
and considerations to investors that may
not be fully realized at the time of the
Original AC’s IPO or at the time of each
spin-off transaction when investors have
the opportunity to receive shares in the
SpinCo AC or redeem their pro-rata
portion of the SpinCo AC
Contribution.34 Further, although the
Exchange states the proposal is expected
to allow an AC that determines that it
will have excess cash following its
initial Business Combination to spin-off
those funds to a new AC,35 the proposal
is not limited to this particular situation
and would allow an AC to break escrow
to create new SpinCo ACs at any time
after its IPO, regardless of whether any
potential Business Combination has
been identified.36 Moreover, under
current AC rules, investors have to make
one determination on whether to
redeem their shares or retain ownership
33 See 2008 Order, supra note 8. 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
Section 102.06(vi) of the Manual. This is not
required for the Original AC as set forth under
current Section 102.06(b) and (c) of the Manual and
would result in the redeeming shareholders
potentially receiving less than 90% of the gross
proceeds from the trust account. Under the current
AC listing rules, only taxes payable and amounts
disbursed to management for working capital
purposes can be excluded from the aggregate
amount in the trust account.
34 For example, under the proposal it would be
difficult for an investor to know at the time of its
investment in the Original AC (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 AC’s Business Combination.
The Commission believes such information would
be important to investors in making informed
investment decisions in the Original AC.
35 See Notice, supra note 3, at 50409.
36 The proposal also does not include any timing
limitations with respect to when an AC 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 three-year period within
which the Original AC and any SpinCo AC 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.
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70153
in the combined operating business after
a Business Combination that has a fair
market value equal to at least 80% of the
net assets of the trust 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 ACs, 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 AC and/or
the SpinCo ACs occurs. 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 AC.37 For these reasons, the
Commission is concerned that investors
may not have adequate information at
the time they initially invest in the
Original AC and at the time they are
required to make decisions regarding
whether to invest in the SpinCo ACs or
to redeem their investment, which can
occur multiple times over the term of
the Original AC, 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
concerns. For example, proposed
Section 102.06(i) would provide
shareholders the right to redeem,
‘‘through one or more corporate
transactions,’’ their pro rata portion of
the AC’s contribution to a SpinCo AC’s
trust account. In addition, proposed
Section 102.06(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 trust 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 AC or specify
what would qualify as an acceptable
corporate transaction for purposes of a
redemption.38 Moreover, the proposed
37 In these situations, the SpinCo AC may be
structured completely differently than was
disclosed at the time of the investment in the
Original AC. For example, nothing in the proposal
prevents the SpinCo AC from having a different
target industry or business than the Original AC,
different compensation arrangements than the
Original AC, or different terms than disclosed in the
Original AC registration statement.
38 The Exchange states that a redemption could
occur, for example, through a partial cash tender
offer for shares of the Original AC pursuant to Rule
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rule states that an AC will be permitted
to contribute a portion of the amount
held in the trust account to a trust
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 AC, 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 Section 102.06 with respect
to SpinCo ACs shall similarly apply to
successive spin-offs or similar corporate
transactions. The Exchange provides no
specificity or detail regarding what
factors the Exchange would consider
when determining whether a transaction
is a ‘‘similar corporate transaction’’ to a
spinoff covered by the proposed rule. As
drafted, the rule text would appear to
give the Exchange broad discretion in
determining what ‘‘similar’’ corporate
transactions are covered by the
proposed rule and such broad discretion
could be used in a different manner
with respect to different AC 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
determine to apply the rule to some
successive corporate transactions and
not others on a case by case basis by
invoking its discretion through the
proposed 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 the scope of the
proposal 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
13e–4 and Regulation 14E under the Act, and the
redemption may be of a separate class of shares
distributed to unitholders of the Original AC for the
purpose of facilitating the redemption. See Notice,
supra note 3, at 50409 n.5. On the other hand,
Section 102.06 of the Manual currently includes
very specific requirements relating to redemption
rights of public shareholders with respect to a
Business Combination. See Section 102.06(b)–(c) of
the Manual.
VerDate Sep<11>2014
17:41 Dec 08, 2021
Jkt 256001
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.’’ 39 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,40 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.41
For these reasons, the Commission
believes it is appropriate to institute
proceedings pursuant to Section
19(b)(2)(B) of the Act 42 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
persons concerning whether the
proposal is consistent with Section
6(b)(5) 43 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,44 any request
for an opportunity to make an oral
presentation.45
39 17
CFR 201.700(b)(3).
id.
41 See id.
42 15 U.S.C. 78s(b)(2)(B).
43 15 U.S.C. 78f(b)(5).
44 17 CFR 240.19b–4.
45 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
40 See
PO 00000
Frm 00073
Fmt 4703
Sfmt 4703
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposed rule change should be
approved or disapproved by December
30, 2021. Any person who wishes to file
a rebuttal to any other person’s
submission must file that rebuttal by
January 13, 2022. 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,46 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–
NYSE–2021–42 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–NYSE–2021–42. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 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
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
46 See supra note 3.
E:\FR\FM\09DEN1.SGM
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Federal Register / Vol. 86, No. 234 / Thursday, December 9, 2021 / Notices
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSE–2021–42 and should
be submitted by December 30, 2021.
Rebuttal comments should be submitted
by January 13, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.47
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–26625 Filed 12–8–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–586, OMB Control No.
3235–0647]
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
khammond on DSKJM1Z7X2PROD with NOTICES
Extension:
Rule 204
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the collection of information
provided for in Rule 204 (17 CFR
242.204) under the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.). The
Commission plans to submit this
existing collection of information to the
Office of Management and Budget
(‘‘OMB’’) for extension and approval.
Rule 204(a) provides that a participant
of a registered clearing agency must
deliver securities to a registered clearing
agency for clearance and settlement on
a long or short sale in any equity
security by settlement date, or if a
participant of a registered clearing
agency has a fail to deliver position at
a registered clearing agency in any
equity security for a long or short sale
transaction in the equity security, the
participant shall, by no later than the
beginning of regular trading hours on
the applicable close-out date,
immediately close out its fail to deliver
positions by borrowing or purchasing
securities of like kind and quantity. For
a short sale transaction, the participant
must close out a fail to deliver by no
later than the beginning of regular
trading hours on the settlement day
47 17
CFR 200.30–3(a)(57).
VerDate Sep<11>2014
17:41 Dec 08, 2021
Jkt 256001
following the settlement date. If a
participant has a fail to deliver that the
participant can demonstrate on its books
and records resulted from a long sale, or
that is attributable to bona-fide market
making activities, the participant must
close out the fail to deliver by no later
than the beginning of regular trading
hours on the third consecutive
settlement day following the settlement
date. Rule 204 is intended to help
further the Commission’s goal of
reducing fails to deliver by maintaining
the reductions in fails to deliver
achieved by the adoption of temporary
Rule 204T, as well as other actions
taken by the Commission. In addition,
Rule 204 is intended to help further the
Commission’s goal of addressing
potentially abusive ‘‘naked’’ short
selling in all equity securities.
The information collected under Rule
204 will continue to be retained and/or
provided to other entities pursuant to
the specific rule provisions and will be
available to the Commission and selfregulatory organization (‘‘SRO’’)
examiners upon request. The
information collected will continue to
aid the Commission and SROs in
monitoring compliance with these
requirements. In addition, the
information collected will aid those
subject to Rule 204 in complying with
its requirements. These collections of
information are mandatory.
Several provisions under Rule 204
will impose a ‘‘collection of
information’’ within the meaning of the
Paperwork Reduction Act.
I. Allocation Notification
Requirement: As of December 31, 2020,
there were 3,551 registered brokerdealers.1 Each of these broker-dealers
could clear trades through a participant
of a registered clearing agency and,
therefore, become subject to the
notification requirements of Rule
204(d). If a participant allocates a fail to
deliver position to a broker or dealer
pursuant to Rule 204(d), the broker or
dealer that has been allocated the fail to
deliver position in an equity security
must determine whether such fail to
deliver position was closed out in
accordance with Rule 204(a). If such
broker or dealer does not comply with
the provisions of Rule 204(a), such
broker or dealer must immediately
notify the participant that it has become
subject to the requirements of Rule
204(b). The Commission estimates that
a broker or dealer could have to make
such determination and notification
1 The Commission’s Division of Economic Risk
and Analysis (‘‘DERA’’) estimates that there were
approximately 3,551 registered broker-dealers as of
December 31, 2020.
PO 00000
Frm 00074
Fmt 4703
Sfmt 4703
70155
with respect to approximately 2.1 equity
securities per day.2 The Commission
estimates a total of 1,886,646 potential
notifications in accordance with Rule
204(d) across all registered brokerdealers that could be allocated
responsibility to close out a fail to
deliver position per year (3,551
registered broker-dealers notifying
participants once per day 3 on 2.1 equity
securities, multiplied by 253 trading
days in 2020). The total estimated
annual burden hours per year will be
approximately 301,864 burden hours
(1,886,646 multiplied by 0.16 hours/
notification).4
II. Demonstration Requirement for
Fails to Deliver on Long Sales: As of
December 31, 2020, there were 127
participants of NSCC that were
registered as broker-dealers. If a
participant of a registered clearing
agency has a fail to deliver position in
an equity security at a registered
clearing agency and determined that
such fail to deliver position resulted
from a long sale, the Commission
estimates that a participant of a
registered clearing agency will have to
make such a determination with respect
to approximately 29 securities per day.5
The Commission estimates a total of
931,799 potential demonstrations in
accordance with Rule 204(a)(1) across
all broker-dealer participants per year
(127 participants checking for
compliance once per day on 29
securities, multiplied by 253 trading
days in 2020). The total approximate
estimated annual burden hours per year
will be approximately 149,088 burden
2 DERA estimates that there were approximately
7,450 average daily fail to deliver positions during
2020. Across 3,551 registered broker-dealers, the
number of securities per registered broker-dealer
per trading day is approximately 2.1 (7,450 ÷ 3,551)
equity securities.
3 Because failure to comply with the close-out
requirements of Rule 204(a) is a violation of the
rule, the Commission believes that a broker or
dealer would make the notification to a participant
that it is subject to the borrowing requirements of
Rule 204(b) at most once per day.
4 See Amendments to Regulation SHO, Exchange
Act Release No. 60388 (July 27, 2009), 74 FR 38265
(July 31, 2009) (‘‘Rule 204 Adopting Release’’) (July
27, 2009) (making permanent the amendments to
Regulation SHO contained in Interim Final
Temporary Rule 204T and incorporating by
reference the time estimates from the Rule 204T
Adopting Release for compliance with the
notification, demonstration, and certification
requirements of Rule 204).
5 DERA estimates that during 2020 approximately
49.2% of trade volume was long. DERA estimates
that there were approximately 7,450 average daily
fail to deliver positions during 2020. Across 127
broker-dealer participants of the NSCC, the number
of securities per participant per day is
approximately 59 (7,450 ÷ 127) equity securities.
49.2% of 59 equity securities per trading day equals
approximately 29 securities per day.
E:\FR\FM\09DEN1.SGM
09DEN1
]]>Agencies
[Federal Register Volume 86, Number 234 (Thursday, December 9, 2021)]
[Notices]
[Pages 70150-70155]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-26625]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93714; File No. SR-NYSE-2021-42]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Amend the Requirements of Section 102.06 of the
NYSE Listed Company Manual To Allow an Acquisition Company To
Contribute a Portion of Its Trust Account to a New Acquisition Company
and Spin-Off the New Acquisition Company to Its Shareholders
December 3, 2021.
I. Introduction
On August 23, 2021, 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'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend the requirements of
Section 102.06 of the NYSE Listed Company Manual (``Manual'') to allow
an acquisition company to contribute a portion of the amount held in
its trust account to a trust account of a new acquisition company and
spin off the new acquisition company to its shareholders in certain
situations. The proposed rule change was published for comment in the
Federal Register on September 8, 2021.\3\ On September 30, 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\
[[Page 70151]]
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. 92839 (September 1,
2021), 86 FR 50408 (``Notice''). Comments received on the proposal
are available on the Commission's website at: https://www.sec.gov/comments/sr-nyse-2021-42/srnyse202142.htm.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 93222, 86 FR 55671
(October 6, 2021). The Commission designated December 7, 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
In 2008, the Exchange adopted a rule to allow companies that have
no prior operating history and that have indicated their business plan
is to consummate a business combination with one or more operating
businesses or assets (``Business Combination'') \7\ to list on the
Exchange if they meet all applicable initial listing requirements, as
well as additional conditions designed to provide investor protections
to address specific concerns about the structure of such companies
(``Acquisition Companies'' or ``ACs'').\8\ These additional conditions
generally require, among other things, that at least 90% of the
proceeds from the initial public offering (``IPO'') and any concurrent
sale of the AC's equity securities be held in a trust account
controlled by an independent custodian and that the AC complete within
three years (or such shorter period specified by the AC's constitutive
documents or by contract) a Business Combination having a fair market
value of at least 80% of the net assets held in the trust account at
the time of the agreement to enter into the initial combination (net of
amounts disbursed to management for working capital purposes and
excluding the amount of any deferred underwriting discount held in
trust).\9\ Section 102.06 of the Manual further requires that each
Business Combination be approved by a majority of the AC's independent
directors.\10\ If the AC holds a shareholder vote on a Business
Combination, the Business Combination must be approved by a majority of
the votes cast 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 on
deposit in the trust account (net of taxes payable and amounts
distributed to management for working capital purposes) if the Business
Combination is approved and consummated.\11\ If a shareholder vote on a
Business Combination is not held, the AC 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.\12\
---------------------------------------------------------------------------
\7\ Section 102.06 of the Manual provides that a Business
Combination may be 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.
\8\ See Securities Exchange Act Release No. 57785 (May 6, 2008),
73 FR 27597 (May 13, 2008) (SR-NYSE-2008-17) (``2008 Order''). See
also Section 102.06 of the Manual. Acquisition Companies are also
known as ``Special Purpose Acquisition Companies'' or ``SPACs.''
\9\ See Section 102.06 of the Manual.
\10\ See Section 102.06(d) of the Manual.
\11\ See Section 102.06(a) and (b) of the Manual.
\12\ See Section 102.06(c) of the Manual.
---------------------------------------------------------------------------
The Exchange now proposes to modify Section 102.06 of the Manual to
allow an AC listed under that rule to contribute a portion of the
amount held in its trust account to the trust account of a new entity
in a spin-off or similar corporate transaction (``SpinCo AC'').
According to the Exchange, when an AC 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 an AC 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.\13\ The Exchange states
that it is proposing to modify Section 102.06 of the Manual to permit
what it believes is a more efficient structure whereby an AC 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 AC, which would be
subject to the provisions of Section 102.06, in the same manner as the
original AC, and spun off to the original AC's shareholders.\14\
---------------------------------------------------------------------------
\13\ See Notice, supra note 3, at 50409. The Exchange further
states that ``[t]his has resulted in the inefficient, current
practice of AC sponsors creating multiple ACs of different sizes at
the same time, with the intention to use the AC that is closest in
size to the amount a particular target needs.'' Id.
\14\ See id. The three-year period to complete a Business
Combination under Section 102.06 of the Manual would, however, be
calculated for each SpinCo AC based on the date of the original AC's
effective registration statement.
---------------------------------------------------------------------------
Specifically, proposed Section 102.06 of the Manual would provide
that an AC will be permitted to contribute (the ``Contribution'') in a
spin-off or similar corporate transaction a portion of the amount held
in the AC's trust account to a trust account of another entity as
provided below:
(i) In connection with the Contribution, each AC public shareholder
has the right, through one or more corporate transactions, to redeem a
portion of its shares of common stock or units, as applicable, for its
pro rata portion of the amount of the Contribution in lieu of being
entitled to receive shares or units in the SpinCo AC;
(ii) the requirement of Section 102.06 of the Manual that the AC
provide each public shareholder voting against a Business Combination
with the 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, will be considered satisfied by pro rata distribution
to such shareholders of the amounts in the trust account after having
been reduced by the Contribution;
(iii) the public shareholders of the AC receive shares or units of
the SpinCo AC on a pro rata basis, except to the extent they have
elected to redeem a portion of their shares of the AC in lieu of being
entitled to receive shares or units in the SpinCo AC;
(iii) \15\ the Contribution will remain in a trust account for the
benefit of the shareholders of the SpinCo AC in the manner required for
ACs listed under Section 102.06 of the Manual;
---------------------------------------------------------------------------
\15\ The Exchange's proposed rule mistakenly includes two
paragraphs numbered Section 102.06(iii).
---------------------------------------------------------------------------
(iv) the SpinCo AC meets all applicable initial listing
requirements for an AC listing in connection with an initial public
offering under Section 102.06 of the Manual; it being understood that,
following such spin-off or similar corporate transaction:
(A) The 80% described in the first paragraph of Section 102.06 \16\
shall, in the case of the AC, be calculated based on the aggregate
amount remaining in the trust account of the AC at the time of the
agreement to enter into the Business Combination as reduced by the
Contribution, and, in the case of the SpinCo AC, be calculated based on
the aggregate amount in its trust account at the time of its agreement
to enter into a Business Combination, and
---------------------------------------------------------------------------
\16\ See supra note 9 and accompanying text, for a description
of the requirements of Section 102.06 of the Manual.
---------------------------------------------------------------------------
(B) the right to convert and opportunity to redeem shares of common
stock on a pro rata basis required for ACs listed under Section 102.06
of the Manual shall, in the case of the AC, be deemed to apply to the
aggregate amount remaining in the trust account of the AC after the
Contribution to the SpinCo AC, and, in the case of the
[[Page 70152]]
SpinCo AC, be deemed to apply to the aggregate amount in its trust
account;
(v) in the case of the SpinCo AC, and any additional entities spun
off from the SpinCo AC, each of which will also be considered a SpinCo
AC, the three-year period (or such shorter period specified by the AC's
constitutive documents or by contract) within which a listed AC must
consummate its Business Combination under Section 102.06 of the Manual
will be calculated based on the date of effectiveness of the AC's IPO
registration statement; and
(vi) in the aggregate, through one or more opportunities by the AC
and one or more SpinCo ACs, public shareholders will have the ability
to convert or redeem shares, or receive amounts upon liquidation, for
the full amount of the trust account established by the AC as described
in the first paragraph of Section 102.06 of the Manual (excluding any
deferred underwriters fees and taxes payable on the income earned on
the trust account).
The Exchange states that, under the proposal, it expects that the
new structure will be implemented in the following manner. If a listed
AC (the ``Original AC'') determines that it will not need all the cash
in its trust account for its initial Business Combination, the Original
AC will designate the excess cash for a new trust account of a SpinCo
AC that will be spun off to Original AC's shareholders.\17\ The
Exchange states that the amount designated for the SpinCo trust account
must continue to be held for the benefit of the shareholders of the
Original AC until the completion of the spin-off transaction and,
following the spin-off of the SpinCo AC to the Original AC's
shareholders, the SpinCo trust account would be subject to the same
requirements as the trust account of the Original AC.\18\
---------------------------------------------------------------------------
\17\ See Notice, supra note 3, at 50409.
\18\ See id.
---------------------------------------------------------------------------
According to the Exchange, the SpinCo AC would file a registration
statement under the Securities Act of 1933 for purposes of effecting
the spin-off of the SpinCo AC and, prior to the effectiveness of the
registration statement, the Original AC 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 trust account divided by the per share amount in
the Original AC's trust account.\19\ The Exchange further states that,
after completing the tender offer for the redemption and the
effectiveness of the SpinCo AC's registration statement, the Original
AC would contribute the SpinCo trust account to a trust account held by
the SpinCo AC in exchange for shares or units of the SpinCo AC, which
the Original AC would then distribute to its public shareholders on a
pro rata basis through one or more corporate transactions pursuant to
the SpinCo AC's effective registration statement.\20\
---------------------------------------------------------------------------
\19\ See id. According to the Exchange, the redemption could
occur, for example, through a partial cash tender offer for shares
of the Original AC pursuant to Rule 13e-4 and Regulation 14E under
the Act, and the redemption may be of a separate class of shares
distributed to unitholders of the Original AC for the purpose of
facilitating the redemption. See id. at 50409 n.5.
\20\ See id. at 50409.
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According to the Exchange, the Original AC would then continue to
operate as an AC 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 AC, while
the SpinCo AC would operate in the same manner as a traditional AC,
except that it could effect a subsequent spin-off prior to its Business
Combination like the Original AC.\21\ The Exchange states that if
SpinCo AC does not elect to effect a spin-off, it would either (i)
proceed to complete an initial Business Combination and offer
redemption rights in connection therewith like a traditional AC, or
(ii) liquidate.\22\
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\21\ See id.
\22\ See id.
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Finally, the Exchange proposes to amend the subsection of Section
802.01B of the Manual setting forth the continued listing criteria
applicable to ACs to specify that those criteria would also be
applicable in their entirety to SpinCo ACs. In addition, the Exchange
proposes to add a new subsection to Section 102.06 of the Manual
stating that the applicable continued listing criteria for both ACs and
SpinCo ACs would be set forth in Section 802.01B of the Manual.
III. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2021-42 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \23\ 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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\23\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\24\ 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.\25\
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\24\ Id.
\25\ 15 U.S.C. 78f(b)(5).
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As described above, the proposal would allow an AC listed under
Section 102.06 of the Manual to contribute a portion of the amount held
in its trust account to the trust account of a SpinCo AC. The Exchange
states that the proposal would permit a more efficient structure
because an AC often raises an amount of capital through its IPO that is
not optimal for the needs of a specific acquisition target.\26\
According to the Exchange, this has resulted in AC sponsors creating
multiple ACs of different sizes at the same time, with the intention to
use the AC that is closest in size to the amount a particular
acquisition target needs.\27\ The Exchange believes this practice
creates the potential for conflicts of interest, fails to optimize the
amount of capital that would benefit the AC's public shareholders and a
Business Combination target, creates inefficiencies, and can lead to
confusion.\28\ 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 ACs.\29\
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\26\ See Notice, supra note 3, at 50409.
\27\ See id.
\28\ See id.
\29\ See id. at 50410.
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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.
[[Page 70153]]
First, the Commission is concerned that the proposed amendments to
Section 102.06 of the Manual would circumvent the current requirements
of Section 102.06 that the Commission previously found were designed to
protect investors.\30\ Specifically, Section 102.06 of the Manual
requires an AC to complete one or more Business Combinations having a
fair market value equal to at least 80% of the net assets held in
trust.\31\ 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 AC will not seek a very small AC 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 an AC to engage in multiple Business
Combinations that are very small in size as compared to the original
amount in the trust account. The proposal also does not include any
limitations with respect to the amount an AC may contribute to a SpinCo
AC and thereby reduce its escrow account. Moreover, it appears the
proposed structure could potentially incentivize AC 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 AC, 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 ACs to engage in such transactions effectively
eliminates the original 80% requirement, may subvert investor
expectations regarding an AC's future Business Combination prospects,
and may benefit the founders of ACs at the expense of retail
investors.\32\ 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
Section 102.06 of the Manual and which the Commission found to be
consistent with the Act.\33\
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\30\ See 2008 Order, supra note 8.
\31\ The trust account must contain at least 90% of the proceeds
from the AC's IPO and any concurrent sale by the AC of equity
securities. See Section 102.06 of the Manual.
\32\ Moreover, the proposal does not appear to be limited to
future ACs and could potentially allow existing ACs to engage in
spin-offs. The Commission believes that permitting existing ACs to
engage in such transactions could raise investor protection issues
given that investors who initially invested in the ACs would not
have been aware that the AC would not have to comply with the 80%
requirement and could spin off into multiple SpinCo ACs.
\33\ See 2008 Order, supra note 8. 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
Section 102.06(vi) of the Manual. This is not required for the
Original AC as set forth under current Section 102.06(b) and (c) of
the Manual and would result in the redeeming shareholders
potentially receiving less than 90% of the gross proceeds from the
trust account. Under the current AC listing rules, only taxes
payable and amounts disbursed to management for working capital
purposes can be excluded from the aggregate amount in the trust
account.
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Furthermore, the Commission believes the proposal could introduce
additional complexity to AC securities, particularly for retail
investors. While the market in AC securities is already complex, the
Exchange's proposal would allow for the listing of ACs that may spin-
off into smaller and smaller ACs, each presenting additional risks and
considerations to investors that may not be fully realized at the time
of the Original AC's IPO or at the time of each spin-off transaction
when investors have the opportunity to receive shares in the SpinCo AC
or redeem their pro-rata portion of the SpinCo AC Contribution.\34\
Further, although the Exchange states the proposal is expected to allow
an AC that determines that it will have excess cash following its
initial Business Combination to spin-off those funds to a new AC,\35\
the proposal is not limited to this particular situation and would
allow an AC to break escrow to create new SpinCo ACs at any time after
its IPO, regardless of whether any potential Business Combination has
been identified.\36\ Moreover, under current AC 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 a fair market value equal to at least 80% of the
net assets of the trust 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 ACs, 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 AC and/or the SpinCo ACs occurs. 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
AC.\37\ For these reasons, the Commission is concerned that investors
may not have adequate information at the time they initially invest in
the Original AC and at the time they are required to make decisions
regarding whether to invest in the SpinCo ACs or to redeem their
investment, which can occur multiple times over the term of the
Original AC, raising investor protection concerns under Section 6(b)(5)
of the Act.
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\34\ For example, under the proposal it would be difficult for
an investor to know at the time of its investment in the Original AC
(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 AC's
Business Combination. The Commission believes such information would
be important to investors in making informed investment decisions in
the Original AC.
\35\ See Notice, supra note 3, at 50409.
\36\ The proposal also does not include any timing limitations
with respect to when an AC 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 three-year period within which
the Original AC and any SpinCo AC 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.
\37\ In these situations, the SpinCo AC may be structured
completely differently than was disclosed at the time of the
investment in the Original AC. For example, nothing in the proposal
prevents the SpinCo AC from having a different target industry or
business than the Original AC, different compensation arrangements
than the Original AC, or different terms than disclosed in the
Original AC 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 concerns. For example, proposed Section 102.06(i)
would provide shareholders the right to redeem, ``through one or more
corporate transactions,'' their pro rata portion of the AC's
contribution to a SpinCo AC's trust account. In addition, proposed
Section 102.06(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 trust 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 AC or
specify what would qualify as an acceptable corporate transaction for
purposes of a redemption.\38\ Moreover, the proposed
[[Page 70154]]
rule states that an AC will be permitted to contribute a portion of the
amount held in the trust account to a trust 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 AC, 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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\38\ The Exchange states that a redemption could occur, for
example, through a partial cash tender offer for shares of the
Original AC pursuant to Rule 13e-4 and Regulation 14E under the Act,
and the redemption may be of a separate class of shares distributed
to unitholders of the Original AC for the purpose of facilitating
the redemption. See Notice, supra note 3, at 50409 n.5. On the other
hand, Section 102.06 of the Manual currently includes very specific
requirements relating to redemption rights of public shareholders
with respect to a Business Combination. See Section 102.06(b)-(c) of
the Manual.
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In addition, the Exchange has proposed that the conditions
described in proposed Section 102.06 with respect to SpinCo ACs shall
similarly apply to successive spin-offs or similar corporate
transactions. The Exchange provides no specificity or detail regarding
what factors the Exchange would consider when determining whether a
transaction is a ``similar corporate transaction'' to a spinoff covered
by the proposed rule. As drafted, the rule text would appear to give
the Exchange broad discretion in determining what ``similar'' corporate
transactions are covered by the proposed rule and such broad discretion
could be used in a different manner with respect to different AC
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 determine to apply the rule to some successive corporate
transactions and not others on a case by case basis by invoking its
discretion through the proposed 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 the scope of the
proposal 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.'' \39\ 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,\40\ 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.\41\
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\39\ 17 CFR 201.700(b)(3).
\40\ See id.
\41\ 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 \42\
to determine whether the proposal should be approved or disapproved.
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\42\ 15 U.S.C. 78s(b)(2)(B).
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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) \43\ 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,\44\ any request for an opportunity to make an oral
presentation.\45\
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\43\ 15 U.S.C. 78f(b)(5).
\44\ 17 CFR 240.19b-4.
\45\ 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 December 30, 2021. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
January 13, 2022. 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,\46\ in addition to any other
comments they may wish to submit about the proposed rule change.
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\46\ 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-NYSE-2021-42 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-NYSE-2021-42. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 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
[[Page 70155]]
comment submissions. You should submit only information that you wish
to make available publicly. All submissions should refer to File Number
SR-NYSE-2021-42 and should be submitted by December 30, 2021. Rebuttal
comments should be submitted by January 13, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
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\47\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-26625 Filed 12-8-21; 8:45 am]
BILLING CODE 8011-01-P
