Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Disapproving 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, 14592-14596 [2022-05369]
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Federal Register / Vol. 87, No. 50 / Tuesday, March 15, 2022 / Notices
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2022–11. 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
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSE–2022–11 and should
be submitted on or before April 5, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–05371 Filed 3–14–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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[Release No. 34–94392; File No. SR–NYSE–
2022–04]
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to permit the listing and trading
of certain exchange traded products that
include in their portfolios a NMS Stock
listed on the Exchange, or that are based
on or represent an interest in an
underlying index or reference asset that
includes a NMS Stock listed on the
Exchange. The proposed rule change
was published for comment in the
Federal Register on January 31, 2022.3
Section 19(b)(2) of the Act 4 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding, or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for this
proposed rule change is March 17, 2022.
The Commission is extending the 45day time period for Commission action
on the proposed rule change. The
Commission finds it appropriate to
designate a longer period within which
to take action on the proposed rule
change so that it has sufficient time to
consider the proposed rule change.
Accordingly, pursuant to Section
19(b)(2) of the Act,5 the Commission
designates May 1, 2022 as the date by
which the Commission shall either
approve or disapprove, or institute
proceedings to determine whether to
disapprove, the proposed rule change
(File No. SR–NYSE–2022–04).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–05370 Filed 3–14–22; 8:45 am]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Designation of a Longer Period for
Commission Action on a Proposed
Rule Change To Amend Rules 5P,
5.2(j)(8)(e), 8P, and 98
BILLING CODE 8011–01–P
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 94053
(January 25, 2022), 87 FR 4982.
4 15 U.S.C. 78s(b)(2).
5 Id.
6 17 CFR 200.30–3(a)(31).
2 17
March 9, 2022.
On January 14, 2022, New York Stock
Exchange LLC (‘‘Exchange’’) filed with
13 17
CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94389; File No. SR–
NASDAQ–2021–054]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Order
Disapproving 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
March 9, 2022.
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 On September
30, 2021, the Commission instituted
proceedings under Section 19(b)(2)(B) of
the Act 6 to determine whether to
approve or disapprove the proposed
rule change.7 On January 3, 2022, the
Commission extended the period for
consideration of the proposed rule
change to March 10, 2022.8
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).
7 See Securities Exchange Act Release No. 93219,
86 FR 55664 (October 6, 2021) (‘‘OIP’’).
8 See Securities Exchange Act Release No. 93891,
87 FR 998 (January 7, 2022).
2 17
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This order disapproves the proposed
rule change because, as discussed
below, the Exchange has not met its
burden under the Act and the
Commission’s Rules of Practice to
demonstrate that its proposal is
consistent with the requirements of
Exchange Act Section 6(b)(5), and, in
particular, the requirements 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, and to protect investors and the
public interest, and not be designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.9
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
business plan is to engage in a merger
or acquisition with an unidentified
company or companies.10 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–
5101–2.11 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’’).12 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
9 15
U.S.C. 78f(b)(5).
Nasdaq IM–5101–2.
11 See id.
12 See Nasdaq IM–5101–2(a).
10 See
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combination.13 Nasdaq IM–5101–2
further requires each business
combination to be approved by a
majority of the Acquisition Company’s
independent directors.14 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.15 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.16
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.17 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
13 See
Nasdaq IM–5101–2(b).
14 See Nasdaq IM–5101–2(c).
15 See Nasdaq IM–5101–2(d).
16 See Nasdaq IM–5101–2(e).
17 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.
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14593
provisions of Nasdaq IM–5101–2, in the
same manner as the original SPAC, and
spun off to the original SPAC’s
shareholders.18
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,19
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,20 and (B) for purposes of
18 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.
19 See supra note 13 and accompanying text, for
a description of the requirements of Nasdaq IM–
5101–2(b).
20 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.
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Nasdaq IM–5101–2(d) and (e),21 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
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).22
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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’’).23 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.24
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
21 See supra notes 15–16 and accompanying text,
for a description of the requirements of Nasdaq IM–
5101–2(d) and (e).
22 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.’’
23 See Notice, supra note 3, at 36841–42.
24 See id. at 36842.
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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’’).25 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.26
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.27
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.28
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
25 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.
26 See id. at 36842.
27 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.
28 See id.
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rules, ‘‘while continuing to offer
significant and appropriate protections
to SPAC investors.’’ 29 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
investors’ ability to understand the
companies that a SPAC plans to acquire
and the risks associated with each such
target company.30 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.31
III. Discussion and Commission
Findings
The Commission must consider
whether the Exchange’s proposal is
consistent with the Act, including
Section 6(b)(5), 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 protect
investors and the public interest, and
not be designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.32 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.’’ 33
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,34 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
29 See letter from Kellen Carter, ARK Investment
Management LLC, to Vanessa Countryman,
Secretary, Commission, dated August 2, 2021, at 1–
2.
30 See id. at 2.
31 See letter from White & Case LLP to Vanessa
Countryman, Secretary, Commission, dated August
3, 2021, at 1.
32 15 U.S.C. 78f(b)(5). Pursuant to Section 19(b)(2)
of the Exchange Act, 15 U.S.C. 78s(b)(2), the
Commission must disapprove a proposed rule
change filed by a national securities exchange if it
does not find that the proposed rule change is
consistent with the applicable requirements of the
Exchange Act.
33 Rule 700(b)(3), Commission Rules of Practice,
17 CFR 201.700(b)(3).
34 See id.
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change is consistent with the Act and
the applicable rules and regulations.35
Moreover, ‘‘unquestioning reliance’’ on
a self-regulatory organization’s
representations in a proposed rule
change is not sufficient to justify
Commission approval of a proposed rule
change.36
The Commission has consistently
recognized the importance of national
securities exchange listing standards.
Among other things, such listing
standards help ensure that exchangelisted companies will have sufficient
public float, investor base, and trading
interest to provide the depth and
liquidity necessary to promote fair and
orderly markets.37 With respect to
SPACs, Nasdaq’s current listing
standards provide important investor
protections,38 including that at least
90% of the SPAC’s IPO proceeds be
held in a deposit account; 39 that within
36 months of the effectiveness of its IPO
registration statement (or such shorter
time period specified in the registration
35 See
id.
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36 Susquehanna
Int’l Group, LLP v. Securities and
Exchange Commission, 866 F.3d 442, 447 (D.C. Cir.
2017).
37 The Commission has stated in approving
national securities exchange listing requirements
that the development and enforcement of adequate
standards governing the listing of securities on an
exchange is an activity of critical importance to the
financial markets and the investing public. In
addition, once a security has been approved for
initial listing, maintenance criteria allow an
exchange to monitor the status and trading
characteristics of that issue to ensure that it
continues to meet the exchange’s standards for
market depth and liquidity so that fair and orderly
markets can be maintained. See, e.g., Securities
Exchange Act Release Nos. 91947 (May 19, 2021),
86 FR 28169, 28172 n.47 (May 25, 2021) (SR–
NASDAQ–2020–057) (‘‘Nasdaq 2021 Order’’); 90768
(December 22, 2020), 85 FR 85807, 85811 n.55
(December 29, 2020) (SR–NYSE–2019–67) (‘‘NYSE
2020 Order’’); 82627 (February 2, 2018), 83 FR
5650, 5653 n.53 (February 8, 2018) (SR–NYSE–
2017–30) (‘‘NYSE 2018 Order’’); 81856 (October 11,
2017), 82 FR 48296, 48298 (October 17, 2017) (SR–
NYSE–2017–31); 81079 (July 5, 2017), 82 FR 32022,
32023 (July 11, 2017) (SR–NYSE–2017–11). The
Commission has stated that adequate listing
standards, by promoting fair and orderly markets,
are consistent with Section 6(b)(5) of the Exchange
Act, in that they are, among other things, designed
to prevent fraudulent and manipulative acts and
practices, promote just and equitable principles of
trade, and protect investors and the public interest.
See, e.g., Nasdaq 2021 Order, 86 FR at 28172 n.47;
NYSE 2020 Order, 85 FR at 85811 n.55; NYSE 2018
Order, 83 FR at 5653 n.53; Securities Exchange Act
Release Nos. 87648 (December 3, 2019), 84 FR
67308, 67314 n.42 (December 9, 2019) (SR–
NASDAQ–2019–059); 88716 (April 21, 2020), 85 FR
23393, 23395 n.22 (April 27, 2020) (SR–NASDAQ–
2020–001).
38 See Securities Exchange Act Release No. 58228
(July 25, 2008), 73 FR 44794, 44796 (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’’).
39 See Nasdaq IM–5101–2(a).
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statement) the SPAC complete one or
more business combinations having an
aggregate fair market value of at least
80% of the value of the deposit
account; 40 and that public shareholders
have a right to redeem their pro rata
share of the full amount of the deposit
account prior to any proposed business
combination.41
As discussed above, Nasdaq now
proposes to amend its listing standards
to allow the SPAC to contribute a
portion of the funds held in its deposit
account to the deposit account of a new
SpinCo SPAC, rather than use those
funds for a business combination with
the Original SPAC. While Nasdaq would
provide shareholders in the original
SPAC redemption rights with respect to
the funds contributed to the SpinCo
SPAC, such rights would not extend to
the funds retained by the Original
SPAC. Instead, shareholders would be
required to make a separate, later
redemption decision with respect to the
remaining funds in the Original SPAC’s
deposit account in connection with its
business combination, once one is
identified. Because Nasdaq proposes to
permit successive SpinCo SPACs,
shareholders could be required to
evaluate multiple potential spin-offs
and business combinations, and engage
in multiple redemption processes if they
desire to redeem their pro rata share of
the full amount originally deposited in
the SPAC’s deposit account.
In support of its proposal, Nasdaq
acknowledges this difference, but states
its belief that it ‘‘does not adversely
affect shareholders because the
shareholders will still have the
opportunity to redeem for the entire pro
rata share of the trust account prior to
completion of the business
combination,’’ although ‘‘the
redemption right may be effected
through two decisions.’’ 42
40 See
Nasdaq IM–5101–2(b).
Nasdaq IM–5101–2(d). See also supra notes
12–16 and accompanying text.
42 See Notice, supra note 3, at 36843. Nasdaq also
states that the proposal would provide public
shareholders an additional, early redemption
opportunity with respect to a portion of their
holdings, before the time they would be able to do
so in a traditional SPAC, and that public
shareholders would maintain the ability to redeem
the portion of their investment attributable to each
specific acquisition after reviewing all disclosure
with respect to that acquisition. See id. at 36842.
Nasdaq further states that all other protections
provided under IM–5101–2 would continue to
apply, with adjustments only to reflect the potential
for a spin-off of a new SPAC that is subject to all
of the requirements of IM–5101–2, and any SpinCo
SPAC would be required to satisfy all applicable
initial listing requirements, like any other SPAC
listing on Nasdaq. See id. at 36842–43. Nasdaq
argues that the proposal would provide
shareholders the opportunity to invest with a SPAC
sponsor without spreading that investment across
the sponsor’s multiple SPACs. See id. at 36842.
41 See
PO 00000
Frm 00156
Fmt 4703
Sfmt 4703
14595
Current SPAC listing standards
provide important protections for
investors in SPACs, where the business
plan is to engage in mergers or
acquisitions with unidentified
companies. As discussed above,
Nasdaq’s current SPAC listing standards
require that SPAC IPO proceeds be held
in a deposit account to be used for
business combination purposes, and
provide shareholders an efficient
mechanism to redeem their entire pro
rata share of those proceeds in a single
transaction. This permits investors who
do not support a business combination
or otherwise lose faith in the abilities of
the SPAC sponsors to fully redeem their
pro rata share of the proceeds when a
business combination is first presented
to them. Under the Exchange’s proposal,
shareholders would lose this ability,
and instead would have to wait until
business combinations are presented by
all successive SpinCo SPACs to fully
redeem their pro rata share of the
proceeds. By proposing to permit funds
in the deposit account to be used to
create new SPACs and to require
shareholders to engage in a series of
redemption processes in order to fully
redeem their pro rata share of the funds
originally deposited in the trust
account, the efficiency of shareholder
redemption rights and the effectiveness
of the investor protections they were
designed to provide could be
undermined.
Further, by proposing to permit
successive SpinCo SPACs, shareholders
could be required to make assessments
of a series of proposed business
combinations of varying sizes as a result
of their investment in the Original
SPAC, rather than doing so once. As
discussed above, SPACs are subject to
heightened listing standards because of
the special risks presented by an
investment in a company where the
business plan is to engage in a merger
or acquisition of an unidentified
company, and to ensure that appropriate
investor protections are in place.43 By
43 In approving Nasdaq’s original listing
standards for SPACs, the Commission found that
the investor protection requirements in IM–5101–2,
including that at least 90% of the IPO proceeds and
any concurrent sale be placed in a deposit account
and that the public shareholders have conversion
rights based on their share of the proceeds in that
deposit account, provide additional safeguards for
investors who invest in SPAC securities, and will
help ensure that public shareholders who disagree
with management’s decision with respect to a
business combination have adequate remedies. See
2008 Order, supra note 38, at 44796. The
Commission further stated that those safeguards
should help to ensure that SPACs that list securities
on Nasdaq will have taken certain additional steps
to address investor protection and other matters and
that the rules provided baseline investor
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khammond on DSKJM1Z7X2PROD with NOTICES
increasing the number of decisions with
respect to unidentified companies that
SPAC investors would be required to
make, and determine whether or not to
exercise redemption rights, the
Exchange’s proposal could add
considerable complexity to the structure
and business combination strategies of
SPACs, and exacerbate the investor
protection concerns presented by
companies where the business plan is to
combine with another company that is
unidentified at the time of investment.44
Nasdaq has not addressed these risks
or how its proposal is consistent with
Section 6(b)(5) of the Exchange Act in
light of them, other than to state that
shareholders will not be adversely
affected because they still have the right
to redeem their full pro rata share of the
deposit account through more than one
transaction.45 Based on the above, the
Commission cannot find that the
proposal is consistent with the
requirement under Section 6(b)(5) of the
Act that the proposal be designed,
among other things, to protect investors
and the public interest.
As stated above, 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.’’ 46 For the
foregoing reasons, the Exchange has not
met its burden to demonstrate that its
proposal is consistent with the
Exchange Act. In particular, the
Exchange has not adequately
demonstrated that its proposal to allow
a SPAC to contribute a portion of the
amount held in its deposit account to
protections. See id. at 44796–97. The Commission
has subsequently stated that ‘‘[b]ecause of their
unique structure, and the fact that at the outset
investors will not know the ultimate business of the
company similar to a blank check company, the
Commission approved Nasdaq listing standards for
SPACs that were similar in some respects to the
investor protection measures contained in Rule 419
under the Securities Act of 1933.’’ Securities
Exchange Act Release No. 63607 (December 23,
2010), 75 FR 82420, 82422 (December 30, 2010)
(order approving SR–NASDAQ–2010–137).
44 See supra note 43 (describing how Nasdaq’s
listing standards for SPACs are designed to address
additional investor protection concerns presented
by SPAC issuers given their unique structure). See
also Securities Exchange Act Release No. 57785
(May 6, 2008), 73 FR 27597, 27599 (May 13, 2008)
(SR–NYSE–2008–17) (approving listing standards
for SPACs on NYSE and stating that SPACs are
‘‘essentially shell companies’’ and that the
additional investor protection criteria on NYSE,
which are comparable to those in IM–5101–2,
‘‘should further the ability of investors to protect
and monitor their investment pending a [b]usiness
[c]ombination’’).
45 See Notice, supra note 3, at 36843; proposed
IM–5101–2(f)(vi).
46 17 CFR 201.700(b)(3).
VerDate Sep<11>2014
21:10 Mar 14, 2022
Jkt 256001
the deposit account of a new SpinCo
SPAC is consistent with investor
protection, the public interest, and other
relevant provisions of Section 6(b)(5) of
the Exchange Act. Accordingly, for the
reasons set forth above, the Commission
must disapprove the proposed rule
change because the Exchange has not
met its burden to demonstrate that the
proposal is consistent with Section
6(b)(5) of the Exchange Act.47
IV. Conclusion
The Commission does not find,
pursuant to Section 19(b)(2) of the
Exchange Act,48 that the proposed rule
change is consistent with the Exchange
Act and the rules and regulations
thereunder applicable to a national
securities exchange, and in particular,
Section 6(b)(5) of the Exchange Act.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,49
that the proposed rule change (SR–
NASDAQ–2021–054) be, and hereby is,
disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.50
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–05369 Filed 3–14–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94383; File No. SR–MSRB–
2022–01]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Further Extend the
Regulatory Relief and Permit Dealers
To Conduct Office Inspections
Remotely Until December 31, 2022
Pursuant to MSRB Rule G–27, on
Supervision
March 9, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
47 In disapproving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f). As described above,
two commenters expressed their belief that the
proposal would result in a more efficient SPAC
structure and use of capital. See supra notes 29–31
and accompanying text. For the reasons discussed
throughout, however, the Commission is
disapproving the proposed rule change because it
does not find that the proposed rule change is
consistent with the Exchange Act.
48 15 U.S.C. 78s(b)(2).
49 Id.
50 17 CFR 200.30–3(a)(12).
PO 00000
Frm 00157
Fmt 4703
Sfmt 4703
or ‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on March 1, 2022, the Municipal
Securities Rulemaking Board (‘‘MSRB’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by the MSRB. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The MSRB filed with the Commission
a proposed rule change to amend
Supplementary Material .01, Temporary
Relief for Completing Office
Inspections, of MSRB Rule G–27, on
supervision, to further extend the
regulatory relief and permit brokers,
dealers and municipal securities dealers
(collectively, ‘‘dealers’’) to conduct
office inspections, due to be completed
during calendar year 2022, remotely
until December 31, 2022 (the ‘‘proposed
rule change’’).
The MSRB has designated the
proposed rule change as constituting a
‘‘noncontroversial’’ rule change under
Section 19(b)(3)(A) 3 of the Act and Rule
19b–4(f)(6) 4 thereunder, which renders
the proposal effective upon receipt of
this filing by the Commission. The
MSRB proposes an operative date of
May 2, 2022.
The text of the proposed rule change
is available on the MSRB’s website at
www.msrb.org/Rules-andInterpretations/SEC-Filings/2022Filings.aspx, at the MSRB’s principal
office, 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
MSRB included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. The MSRB has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
2 17
E:\FR\FM\15MRN1.SGM
15MRN1
]]>Agencies
[Federal Register Volume 87, Number 50 (Tuesday, March 15, 2022)]
[Notices]
[Pages 14592-14596]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-05369]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94389; File No. SR-NASDAQ-2021-054]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Disapproving 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
March 9, 2022.
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\ On September 30, 2021, the Commission instituted proceedings
under Section 19(b)(2)(B) of the Act \6\ to determine whether to
approve or disapprove the proposed rule change.\7\ On January 3, 2022,
the Commission extended the period for consideration of the proposed
rule change to March 10, 2022.\8\
---------------------------------------------------------------------------
\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).
\7\ See Securities Exchange Act Release No. 93219, 86 FR 55664
(October 6, 2021) (``OIP'').
\8\ See Securities Exchange Act Release No. 93891, 87 FR 998
(January 7, 2022).
---------------------------------------------------------------------------
[[Page 14593]]
This order disapproves the proposed rule change because, as
discussed below, the Exchange has not met its burden under the Act and
the Commission's Rules of Practice to demonstrate that its proposal is
consistent with the requirements of Exchange Act Section 6(b)(5), and,
in particular, the requirements 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, and to
protect investors and the public interest, and not be designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers.\9\
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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 business plan is to engage in a merger or
acquisition with an unidentified company or companies.\10\ 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.\11\ 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'').\12\ 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.\13\ Nasdaq IM-5101-2 further requires each business
combination to be approved by a majority of the Acquisition Company's
independent directors.\14\ 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.\15\ 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.\16\
---------------------------------------------------------------------------
\10\ See Nasdaq IM-5101-2.
\11\ See id.
\12\ See Nasdaq IM-5101-2(a).
\13\ See Nasdaq IM-5101-2(b).
\14\ See Nasdaq IM-5101-2(c).
\15\ See Nasdaq IM-5101-2(d).
\16\ 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.\17\ 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.\18\
---------------------------------------------------------------------------
\17\ 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.
\18\ 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,\19\ 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,\20\ and (B) for
purposes of
[[Page 14594]]
Nasdaq IM-5101-2(d) and (e),\21\ 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;
---------------------------------------------------------------------------
\19\ See supra note 13 and accompanying text, for a description
of the requirements of Nasdaq IM-5101-2(b).
\20\ 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.
\21\ See supra notes 15-16 and accompanying text, for a
description of the requirements of Nasdaq IM-5101-2(d) and (e).
---------------------------------------------------------------------------
(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 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).\22\
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\22\ 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'').\23\ 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.\24\
---------------------------------------------------------------------------
\23\ See Notice, supra note 3, at 36841-42.
\24\ See id. at 36842.
---------------------------------------------------------------------------
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'').\25\ 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.\26\
---------------------------------------------------------------------------
\25\ 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.
\26\ See id. at 36842.
---------------------------------------------------------------------------
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.\27\ 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.\28\
---------------------------------------------------------------------------
\27\ 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.
\28\ See id.
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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.'' \29\ 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 investors' ability to understand the companies that a SPAC plans to
acquire and the risks associated with each such target company.\30\
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.\31\
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\29\ See letter from Kellen Carter, ARK Investment Management
LLC, to Vanessa Countryman, Secretary, Commission, dated August 2,
2021, at 1-2.
\30\ See id. at 2.
\31\ See letter from White & Case LLP to Vanessa Countryman,
Secretary, Commission, dated August 3, 2021, at 1.
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III. Discussion and Commission Findings
The Commission must consider whether the Exchange's proposal is
consistent with the Act, including Section 6(b)(5), 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 protect investors
and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.\32\
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.'' \33\
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\32\ 15 U.S.C. 78f(b)(5). Pursuant to Section 19(b)(2) of the
Exchange Act, 15 U.S.C. 78s(b)(2), the Commission must disapprove a
proposed rule change filed by a national securities exchange if it
does not find that the proposed rule change is consistent with the
applicable requirements of the Exchange Act.
\33\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
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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,\34\ 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
[[Page 14595]]
change is consistent with the Act and the applicable rules and
regulations.\35\ Moreover, ``unquestioning reliance'' on a self-
regulatory organization's representations in a proposed rule change is
not sufficient to justify Commission approval of a proposed rule
change.\36\
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\34\ See id.
\35\ See id.
\36\ Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017).
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The Commission has consistently recognized the importance of
national securities exchange listing standards. Among other things,
such listing standards help ensure that exchange-listed companies will
have sufficient public float, investor base, and trading interest to
provide the depth and liquidity necessary to promote fair and orderly
markets.\37\ With respect to SPACs, Nasdaq's current listing standards
provide important investor protections,\38\ including that at least 90%
of the SPAC's IPO proceeds be held in a deposit account; \39\ that
within 36 months of the effectiveness of its IPO registration statement
(or such shorter time period specified in the registration statement)
the SPAC complete one or more business combinations having an aggregate
fair market value of at least 80% of the value of the deposit account;
\40\ and that public shareholders have a right to redeem their pro rata
share of the full amount of the deposit account prior to any proposed
business combination.\41\
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\37\ The Commission has stated in approving national securities
exchange listing requirements that the development and enforcement
of adequate standards governing the listing of securities on an
exchange is an activity of critical importance to the financial
markets and the investing public. In addition, once a security has
been approved for initial listing, maintenance criteria allow an
exchange to monitor the status and trading characteristics of that
issue to ensure that it continues to meet the exchange's standards
for market depth and liquidity so that fair and orderly markets can
be maintained. See, e.g., Securities Exchange Act Release Nos. 91947
(May 19, 2021), 86 FR 28169, 28172 n.47 (May 25, 2021) (SR-NASDAQ-
2020-057) (``Nasdaq 2021 Order''); 90768 (December 22, 2020), 85 FR
85807, 85811 n.55 (December 29, 2020) (SR-NYSE-2019-67) (``NYSE 2020
Order''); 82627 (February 2, 2018), 83 FR 5650, 5653 n.53 (February
8, 2018) (SR-NYSE-2017-30) (``NYSE 2018 Order''); 81856 (October 11,
2017), 82 FR 48296, 48298 (October 17, 2017) (SR-NYSE-2017-31);
81079 (July 5, 2017), 82 FR 32022, 32023 (July 11, 2017) (SR-NYSE-
2017-11). The Commission has stated that adequate listing standards,
by promoting fair and orderly markets, are consistent with Section
6(b)(5) of the Exchange Act, in that they are, among other things,
designed to prevent fraudulent and manipulative acts and practices,
promote just and equitable principles of trade, and protect
investors and the public interest. See, e.g., Nasdaq 2021 Order, 86
FR at 28172 n.47; NYSE 2020 Order, 85 FR at 85811 n.55; NYSE 2018
Order, 83 FR at 5653 n.53; Securities Exchange Act Release Nos.
87648 (December 3, 2019), 84 FR 67308, 67314 n.42 (December 9, 2019)
(SR-NASDAQ-2019-059); 88716 (April 21, 2020), 85 FR 23393, 23395
n.22 (April 27, 2020) (SR-NASDAQ-2020-001).
\38\ See Securities Exchange Act Release No. 58228 (July 25,
2008), 73 FR 44794, 44796 (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'').
\39\ See Nasdaq IM-5101-2(a).
\40\ See Nasdaq IM-5101-2(b).
\41\ See Nasdaq IM-5101-2(d). See also supra notes 12-16 and
accompanying text.
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As discussed above, Nasdaq now proposes to amend its listing
standards to allow the SPAC to contribute a portion of the funds held
in its deposit account to the deposit account of a new SpinCo SPAC,
rather than use those funds for a business combination with the
Original SPAC. While Nasdaq would provide shareholders in the original
SPAC redemption rights with respect to the funds contributed to the
SpinCo SPAC, such rights would not extend to the funds retained by the
Original SPAC. Instead, shareholders would be required to make a
separate, later redemption decision with respect to the remaining funds
in the Original SPAC's deposit account in connection with its business
combination, once one is identified. Because Nasdaq proposes to permit
successive SpinCo SPACs, shareholders could be required to evaluate
multiple potential spin-offs and business combinations, and engage in
multiple redemption processes if they desire to redeem their pro rata
share of the full amount originally deposited in the SPAC's deposit
account.
In support of its proposal, Nasdaq acknowledges this difference,
but states its belief that it ``does not adversely affect shareholders
because the shareholders will still have the opportunity to redeem for
the entire pro rata share of the trust account prior to completion of
the business combination,'' although ``the redemption right may be
effected through two decisions.'' \42\
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\42\ See Notice, supra note 3, at 36843. Nasdaq also states that
the proposal would provide public shareholders an additional, early
redemption opportunity with respect to a portion of their holdings,
before the time they would be able to do so in a traditional SPAC,
and that public shareholders would maintain the ability to redeem
the portion of their investment attributable to each specific
acquisition after reviewing all disclosure with respect to that
acquisition. See id. at 36842. Nasdaq further states that all other
protections provided under IM-5101-2 would continue to apply, with
adjustments only to reflect the potential for a spin-off of a new
SPAC that is subject to all of the requirements of IM-5101-2, and
any SpinCo SPAC would be required to satisfy all applicable initial
listing requirements, like any other SPAC listing on Nasdaq. See id.
at 36842-43. Nasdaq argues that the proposal would provide
shareholders the opportunity to invest with a SPAC sponsor without
spreading that investment across the sponsor's multiple SPACs. See
id. at 36842.
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Current SPAC listing standards provide important protections for
investors in SPACs, where the business plan is to engage in mergers or
acquisitions with unidentified companies. As discussed above, Nasdaq's
current SPAC listing standards require that SPAC IPO proceeds be held
in a deposit account to be used for business combination purposes, and
provide shareholders an efficient mechanism to redeem their entire pro
rata share of those proceeds in a single transaction. This permits
investors who do not support a business combination or otherwise lose
faith in the abilities of the SPAC sponsors to fully redeem their pro
rata share of the proceeds when a business combination is first
presented to them. Under the Exchange's proposal, shareholders would
lose this ability, and instead would have to wait until business
combinations are presented by all successive SpinCo SPACs to fully
redeem their pro rata share of the proceeds. By proposing to permit
funds in the deposit account to be used to create new SPACs and to
require shareholders to engage in a series of redemption processes in
order to fully redeem their pro rata share of the funds originally
deposited in the trust account, the efficiency of shareholder
redemption rights and the effectiveness of the investor protections
they were designed to provide could be undermined.
Further, by proposing to permit successive SpinCo SPACs,
shareholders could be required to make assessments of a series of
proposed business combinations of varying sizes as a result of their
investment in the Original SPAC, rather than doing so once. As
discussed above, SPACs are subject to heightened listing standards
because of the special risks presented by an investment in a company
where the business plan is to engage in a merger or acquisition of an
unidentified company, and to ensure that appropriate investor
protections are in place.\43\ By
[[Page 14596]]
increasing the number of decisions with respect to unidentified
companies that SPAC investors would be required to make, and determine
whether or not to exercise redemption rights, the Exchange's proposal
could add considerable complexity to the structure and business
combination strategies of SPACs, and exacerbate the investor protection
concerns presented by companies where the business plan is to combine
with another company that is unidentified at the time of
investment.\44\
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\43\ In approving Nasdaq's original listing standards for SPACs,
the Commission found that the investor protection requirements in
IM-5101-2, including that at least 90% of the IPO proceeds and any
concurrent sale be placed in a deposit account and that the public
shareholders have conversion rights based on their share of the
proceeds in that deposit account, provide additional safeguards for
investors who invest in SPAC securities, and will help ensure that
public shareholders who disagree with management's decision with
respect to a business combination have adequate remedies. See 2008
Order, supra note 38, at 44796. The Commission further stated that
those safeguards should help to ensure that SPACs that list
securities on Nasdaq will have taken certain additional steps to
address investor protection and other matters and that the rules
provided baseline investor protections. See id. at 44796-97. The
Commission has subsequently stated that ``[b]ecause of their unique
structure, and the fact that at the outset investors will not know
the ultimate business of the company similar to a blank check
company, the Commission approved Nasdaq listing standards for SPACs
that were similar in some respects to the investor protection
measures contained in Rule 419 under the Securities Act of 1933.''
Securities Exchange Act Release No. 63607 (December 23, 2010), 75 FR
82420, 82422 (December 30, 2010) (order approving SR-NASDAQ-2010-
137).
\44\ See supra note 43 (describing how Nasdaq's listing
standards for SPACs are designed to address additional investor
protection concerns presented by SPAC issuers given their unique
structure). See also Securities Exchange Act Release No. 57785 (May
6, 2008), 73 FR 27597, 27599 (May 13, 2008) (SR-NYSE-2008-17)
(approving listing standards for SPACs on NYSE and stating that
SPACs are ``essentially shell companies'' and that the additional
investor protection criteria on NYSE, which are comparable to those
in IM-5101-2, ``should further the ability of investors to protect
and monitor their investment pending a [b]usiness [c]ombination'').
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Nasdaq has not addressed these risks or how its proposal is
consistent with Section 6(b)(5) of the Exchange Act in light of them,
other than to state that shareholders will not be adversely affected
because they still have the right to redeem their full pro rata share
of the deposit account through more than one transaction.\45\ Based on
the above, the Commission cannot find that the proposal is consistent
with the requirement under Section 6(b)(5) of the Act that the proposal
be designed, among other things, to protect investors and the public
interest.
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\45\ See Notice, supra note 3, at 36843; proposed IM-5101-
2(f)(vi).
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As stated above, 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.''
\46\ For the foregoing reasons, the Exchange has not met its burden to
demonstrate that its proposal is consistent with the Exchange Act. In
particular, the Exchange has not adequately demonstrated that its
proposal to allow a SPAC to contribute a portion of the amount held in
its deposit account to the deposit account of a new SpinCo SPAC is
consistent with investor protection, the public interest, and other
relevant provisions of Section 6(b)(5) of the Exchange Act.
Accordingly, for the reasons set forth above, the Commission must
disapprove the proposed rule change because the Exchange has not met
its burden to demonstrate that the proposal is consistent with Section
6(b)(5) of the Exchange Act.\47\
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\46\ 17 CFR 201.700(b)(3).
\47\ In disapproving this proposed rule change, the Commission
has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f). As
described above, two commenters expressed their belief that the
proposal would result in a more efficient SPAC structure and use of
capital. See supra notes 29-31 and accompanying text. For the
reasons discussed throughout, however, the Commission is
disapproving the proposed rule change because it does not find that
the proposed rule change is consistent with the Exchange Act.
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IV. Conclusion
The Commission does not find, pursuant to Section 19(b)(2) of the
Exchange Act,\48\ that the proposed rule change is consistent with the
Exchange Act and the rules and regulations thereunder applicable to a
national securities exchange, and in particular, Section 6(b)(5) of the
Exchange Act.
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\48\ 15 U.S.C. 78s(b)(2).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\49\ that the proposed rule change (SR-NASDAQ-2021-054)
be, and hereby is, disapproved.
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\49\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
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\50\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-05369 Filed 3-14-22; 8:45 am]
BILLING CODE 8011-01-P
