[Federal Register Volume 81, Number 197 (Wednesday, October 12, 2016)]
[Notices]
[Pages 70449-70452]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-24608]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79056; File No. SR-NYSEMKT-2016-62]


Self-Regulatory Organizations; NYSE MKT LLC; Order Granting 
Approval of Proposed Rule Change Amending Section 146 of the NYSE MKT 
Company Guide To Adjust the Entitlement to Services of Special Purpose 
Acquisition Companies

October 6, 2016.

I. Introduction

    On August 2, 2016, NYSE MKT LLC (``NYSE MKT'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities

[[Page 70450]]

Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Section 146 of the NYSE MKT Company Guide 
(``Company Guide'') to adjust the entitlement to services of special 
purpose acquisition companies. The proposed rule change was published 
in the Federal Register on August 22, 2016.\3\ The Commission received 
no comments on the proposal. This order grants approval of the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 78586 (August 16, 
2016), 81 FR 56720 (``Notice'').
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II. Description of the Proposal

    The Exchange proposed to amend Section 146 of the Company Guide to 
adjust the service entitlements of special purpose acquisition 
companies (``SPACs'') under that rule. In its filing, the Exchange 
stated that a SPAC is a special purpose company formed for the purpose 
of effecting a merger, capital stock exchange, asset acquisition, stock 
purchase, reorganization or similar business combination with one or 
more operating businesses or assets.\4\ The Exchange further stated 
that to qualify for initial listing, a SPAC must meet one of the 
quantitative standards in Section 101 or 102 of the Company Guide and 
must also meet the SPAC-specific requirements of Section 119 of the 
Company Guide.\5\ Pursuant to Section 119(b) of the Company Guide, 
within 36 months of the effectiveness of a SPAC's initial public 
offering registration statement, or such shorter period that the 
company specifies in its registration statement, the 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 underwriter's fees and taxes payable on the 
income earned on the deposit account) at the time of the agreement to 
enter into the initial combination (the condition set forth in Section 
119(b) is referred to as the ``Business Combination Condition''). Under 
Section 119 of the Company Guide, among other things, a SPAC must also 
meet the requirements for initial listing after it meets the Business 
Combination Condition.
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    \4\ Id. at 56721.
    \5\ Id. Section 119(a) of the Company Guide requires that at 
least 90% of the gross proceeds from the SPAC's initial public 
offering and any concurrent sale by the SPAC of equity securities 
must be deposited in a trust account maintained by an independent 
trustee, an escrow account maintained by an ``insured depository 
institution,'' as that term is defined in Section 3(c)(2) of the 
Federal Deposit Insurance Act, or in a separate bank account 
established by a registered broker or dealer (collectively, a 
``deposit account''). For the full set of requirements to list a 
SPAC, see Section 119 of the Company Guide.
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    As set forth in Section 146 of the Company Guide, the Exchange 
offers complimentary products and services for a period of 24 calendar 
months from the date of initial listing to a category of listed 
companies defined as ``Eligible New Listings.'' Under the current rule, 
Eligible New Listings include: (i) Any U.S. company that lists common 
stock on the Exchange for the first time and any non-U.S. company that 
lists an equity security on the Exchange under Section 101 or 110 of 
the Company Guide for the first time, regardless of whether such U.S. 
or non-U.S. company conducts an offering; (ii) any U.S. or non-U.S. 
company that transfers its listing of common stock or equity 
securities, respectively, to the Exchange from another national 
securities exchange; or (iii) any U.S. or non-U.S. company emerging 
from a bankruptcy, spinoff (where a company lists new shares in the 
absence of a public offering), and carve-out (where a company carves 
out a business line or division, which then conducts a separate initial 
public offering).
    Currently, pursuant to Section 146 of the Company Guide, Eligible 
New Listings are entitled to receive Web-hosting products and services 
(with a commercial value of approximately $16,000 annually), web-
casting services (with a commercial value of approximately $6,500 
annually), whistleblower hotline services (with a commercial value of 
approximately $4,000 annually), news distribution products and services 
(with a commercial value of approximately $20,000 annually) and 
corporate governance tools (with a commercial value of approximately 
$15,000 annually) for a period of 24 calendar months from the date of 
initial listing on the Exchange. Notwithstanding the foregoing, 
however, if an Eligible New Listing begins to use a particular product 
or service provided for under Section 146 within 30 days of its initial 
listing date, the complimentary period begins on the date of first use.
    The Exchange has now proposed to amend Section 146 of the Company 
Guide to provide that a SPAC will no longer be deemed to be an Eligible 
New Listing at the time of its initial listing, and instead will be 
deemed to be an Eligible New Listing at such time as it has completed 
the Business Combination Condition, if it remains listed thereafter on 
the Exchange. Thus, under the proposal, a SPAC will no longer be 
eligible to receive complimentary products and services under Section 
146 at the time of its initial listing, but will instead be entitled to 
receive such products and services if and when it meets the Business 
Combination Condition. A SPAC that remains listed on the Exchange after 
meeting the Business Combination Condition will be entitled to the 
complimentary products and services under Section 146 for a period of 
24 months from the date on which it meets the Business Combination 
Condition. Notwithstanding the foregoing, however, if such a company 
begins to use a particular product or service provided for under 
Section 146 within 30 days of meeting the Business Combination 
Condition, the complimentary period for that product or service will 
begin on the date of first use.

III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act.\6\ Specifically, the Commission believes it is consistent with the 
provisions of Sections 6(b)(4) and (5) of the Act,\7\ in particular, in 
that it is designed to provide for the equitable allocation of 
reasonable dues, fees, and other charges among Exchange members, 
issuers, and other persons using the Exchange's facilities, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. Moreover, the Commission believes that the 
proposed rule change is consistent with Section 6(b)(8) of the Act \8\ 
in that it does not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.
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    \6\ 15 U.S.C. 78f. In approving 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).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
    \8\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that it is consistent with the Act for the 
Exchange to adjust the timing of when SPACs are eligible to receive 
complimentary products and services under Section 146 of the Company 
Guide from the time of initial listing to the period immediately after 
meeting the Business Combination Condition. The Exchange represented 
that SPACs are unlikely to utilize these complimentary products and 
services at the time of initial listing, but would likely find these 
products and services useful if they remain listed after they meet the 
Business Combination Condition.\9\ The Exchange explained that at the 
time of initial listing, SPACs

[[Page 70451]]

are typically not focused on their stock price and investor relations 
to the same degree as operating companies.\10\ The Exchange stated that 
the complimentary products and services provided under Section 146 are 
targeted in large part toward the market-driven concerns of newly-
listed operating companies, and are therefore less useful to SPACs that 
have not met the Business Combination Condition.\11\ The Exchange 
stated that a SPAC that has met the Business Combination Condition, on 
the other hand, is similarly situated to a newly-formed publicly-traded 
operating company.\12\ Therefore, the Exchange said that it believes 
that the complimentary products and services provided under Section 146 
will be as relevant and attractive to a SPAC that has met the Business 
Combination Condition as to the newly-listed operating companies that 
are generally eligible for those services.\13\
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    \9\ See Notice, supra note 3, 81 FR at 56721.
    \10\ Id. The Exchange stated in its filing that SPACs raise 
money on a one-time basis and typically trade at a price that is 
very close to their liquidation value. Id.
    \11\ Id.
    \12\ Id.
    \13\ Id.
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    In addition, the Exchange stated that in many cases SPACs will 
consider transferring to a new listing venue at the time they meet the 
Business Combination Condition, and that the proposed rule change will 
enable the Exchange to compete for the retention of these companies by 
offering them a package of complimentary products and services that 
assist their transition to becoming a publicly listed operating company 
for the first time.\14\
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    \14\ Id. at 56722.
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    The Exchange also stated that it recognizes that not all SPACs will 
meet the Business Combination Condition and that some listed SPACs will 
therefore never become eligible for the complimentary products and 
services under Section 146 that would be provided to an otherwise 
similarly qualified operating company.\15\ However, the Exchange 
reiterated that, given the specific characteristics of the SPAC 
structure, the complimentary products and services provided under 
Section 146 are generally not of any particular value to a SPAC prior 
to meeting the Business Combination Condition, and the Exchange 
therefore believes that those SPACs that never meet the Business 
Combination Condition and therefore never qualify for the products and 
services under Section 146 will not suffer any meaningful detriment as 
a consequence.\16\
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    \15\ Id.
    \16\ Id.
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    As noted in the previous order approving Section 146 of the Company 
Guide, Section 6(b)(5) of the Act does not require that all issuers be 
treated the same; rather, the Act requires that the rules of an 
Exchange not unfairly discriminate between issuers.\17\ In its 
proposal, the Exchange has made representations that reasonably justify 
treating a SPAC that decides to continue to list on the Exchange after 
meeting the Business Combination Condition similar to a newly-listed 
operating company. In addition, when listed as a SPAC, the SPAC will 
also be eligible to receive complementary products through the 
Exchange's Market Access Center similar to all listed companies.\18\ 
The Commission further notes that a SPAC that completes the Business 
Combination Condition will be receiving the same package of services as 
an Eligible New Listing \19\ and that it will not be receiving any 
additional benefits or services by virtue of the proposed rule change. 
The Commission has previously found that the package of complimentary 
products and services offered to Eligible New Listings is equitably 
allocated among issuers consistent with Section 6(b)(4) of the Act and 
that describing the values of the products and services will add 
greater transparency to the Exchange's rules and to the fees applicable 
to such companies.\20\ The Commission also previously noted that 
describing in the Company Guide the products and services available to 
listed companies and their associated values will ensure that 
individual listed companies are not given specially negotiated packages 
of products or services to list or remain listed that would raise 
unfair discrimination issues under the Act.\21\ Based on the foregoing, 
the Commission believes that the Exchange has provided a sufficient 
basis for adjusting the timing of when SPACs are eligible to receive 
the additional complimentary products and services, set forth under 
Section 146, from the time of a SPAC's initial listing to the period 
immediately after a SPAC meets the Business Combination Condition, and 
that this change does not unfairly discriminate among issuers and is 
therefore consistent with the Act. For similar reasons, and as the 
value of the services offered are not changing, only the timing of when 
such services are provided to a SPAC, we find that the proposal is 
consistent with Section 6(b)(4) of the Act.
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    \17\ 15 U.S.C. 78f(b)(5); see also Securities Exchange Act 
Release No. 77401 (March 17, 2016), 81 FR 15585 (March 23, 2016) 
(approving NYSEMKT-2016-12) (``Previous Order'').
    \18\ See Section 146 of the Company Guide; see also Previous 
Order, supra note 17, footnotes 11-12 and accompanying text.
    \19\ See Section 119 of the Company Guide, requiring, among 
other things, that a SPAC meet the requirements for initial listing 
after it meets the Business Combination Condition just as is 
required for other Eligible New Listings.
    \20\ See Previous Order, supra note 17, at 15586.
    \21\ Id.
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    The Commission also believes that it is consistent with the Act for 
the Exchange to allow the complimentary period for a particular service 
to begin on the date of first use if a SPAC that has met the Business 
Combination Condition begins to use the service within 30 days after 
the date of meeting the Business Combination Condition. The Exchange 
stated in its filing that, in its experience, it will often take 
companies a period of time to review and complete necessary contracts 
and training for the complimentary products and services under Section 
146 following their becoming eligible for those services and that 
allowing this modest 30 day period, if the company needs it, will help 
to ensure that the company will have the benefit of the full period 
permitted under the rule to actually use the services, thereby enabling 
companies to receive the full intended benefit.\22\ The Commission 
notes that Section 146 currently allows an Eligible New Listing to 
begin using services within 30 days of its initial listing date.\23\ As 
noted in the Previous Order, the Commission believes that this would 
provide only a short window of additional time to allow companies to 
finalize their contracts for the complimentary products and services. 
The Commission notes that under the proposed rule this additional 30 
day window would only be available to SPACs that have determined to 
remain listed on the Exchange after meeting the Business Combination 
Condition and thereby treats such SPACs, at the time they qualify for 
listing as an operating company, the same as other newly-listed 
companies that qualify as Eligible New Listings under Section 146.\24\
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    \22\ See Notice, supra note 3, 81 FR at 56722.
    \23\ See Previous Order, supra note 17.
    \24\ The Commission expects the Exchange to track the start (and 
end) date of each free service.
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    The Commission believes that the Exchange is responding to 
competitive pressures in the market for listings in making this 
proposal. Specifically, the Exchange has represented that in many 
cases, SPACs will consider transferring to a new listing venue at the 
time they meet the Business Combination Condition, and that the 
proposed rule

[[Page 70452]]

change would enable it to compete for the retention of these companies 
by offering them a package of complimentary products and services that 
assist their transition to being a publicly listed operating company 
for the first time.\25\ Further, the Commission notes that other 
exchanges have recently filed similar rule changes with respect to the 
timing of complementary services offered to SPACs under their 
rules.\26\ The Commission also notes that nothing in the Exchange's 
rules requires a SPAC to remain listed on the Exchange after it meets 
the Business Combination Condition and that such company is free to 
list on other markets. Accordingly, the Commission believes that the 
proposed rule reflects the current competitive environment for exchange 
listings among national securities exchanges, and is appropriate and 
consistent with Section 6(b)(8) of the Act.\27\
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    \25\ See Notice, supra note 3, 81 FR at 56722.
    \26\ See Securities Exchange Act Release No. 78782 (September 7, 
2016), 81 FR 62937 (September 13, 2016) (SR-NYSE-2016-58) and 
Securities Exchange Act Release No. 79025 (October 3, 2016) (SR-
NASDAQ-2016-106).
    \27\ 15 U.S.C. 78f(b)(8).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\28\ that the proposed rule change (SR-NYSEMKT-2016-62) be, and it 
hereby is, approved.
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    \28\ 15 U.S.C. 78s(b)(2).
    \29\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
Brent J. Fields,
Secretary.
[FR Doc. 2016-24608 Filed 10-11-16; 8:45 am]
 BILLING CODE 8011-01-P