[Federal Register Volume 82, Number 49 (Wednesday, March 15, 2017)]
[Notices]
[Pages 13905-13908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-05137]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80199; File No. SR-NYSE-2016-72]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval of a Proposed Rule Change Amending Initial and 
Continued Listing Standards for Special Purpose Acquisition Companies

March 10, 2017.

I. Introduction

    On December 8, 2016, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend initial listing 
standards for Special Purpose Acquisition Companies (``SPACs'') to 
provide an option to hold a tender offer in lieu of a shareholder vote 
on a proposed acquisition; and amend initial and continued listing 
standards to, among other things, lower quantitative standards. The 
proposed rule change was published for comment in the Federal Register 
on December 29, 2016.\3\ The Commission received no comments on the 
proposal. On February 10, 2017, the Commission extended the time period 
for Commission action on the proposal to March 29, 2017.\4\ This order 
approves 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. 79676 (December 22, 
2016), 81 FR 96150 (December 29, 2016) (``Notice'').
    \4\ See Securities Exchange Act Release No. 80022 (February 10, 
2017), 82 FR 10947 (February 16, 2017) (``Extension'').
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II. Description of the Proposal

A. Background

    A SPAC is a special purpose company that raises capital in an 
initial public offering (``IPO'') to enter into future undetermined 
business combinations through mergers, capital stock exchanges, assets 
acquisitions, stock purchases, reorganizations or similar business 
combinations with one or more operating businesses or assets. In its 
filing, the Exchange stated that in the IPO, a SPAC typically sells 
units consisting of one share of common stock and one or more warrants 
(or fraction of a warrant) to purchase common stocks. The units are 
separable at some point after the IPO. The Exchange also noted that 
management of the SPAC typically receives a percentage of the equity at 
the outset and may be required to purchase additional shares in a 
private placement at the time of the IPO. Due to their unique 
structure, SPACs do not have any prior financial history, at the time 
of their listing, like operating companies.
    NYSE Listed Company Manual (``Manual'') Section 102.06 sets forth 
the listing standards that apply to SPACs.\5\ In addition to requiring 
SPACs to meet certain quantitative standards, Section 102.06 of the 
Manual provides additional investor protection safeguards for 
shareholders investing in SPACs. Currently, Section 102.06 of the 
Manual requires at least 90% of the proceeds raised in a SPAC IPO, and 
any concurrent sale of equity securities, be placed in a trust 
account.\6\ Further within three years, or such shorter time period as 
specified by the SPAC, the SPAC must complete one or more business 
combinations having an aggregate fair market value of at least 80% of 
the value of the trust account.\7\ Until the SPAC has completed a 
business combination, or a series of business combinations, 
representing at least 80% of the trust account's aggregate fair market 
value, the SPAC must, among other things, submit the business 
combination to a shareholder vote.\8\ Any public shareholders who vote 
against the business combination have a right to convert their shares 
of common stock into a pro rata share of the aggregate amount then in 
the trust account, if the business combination is approved and 
consummated.\9\ The Manual further states that a business combination 
cannot be consummated by the SPAC if the public shareholders owning in 
excess of a threshold amount (to be set no higher than 40%) of the 
shares of common stock exercise their conversion rights.\10\
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    \5\ The Commission notes that throughout this order we have used 
the term ``SPAC'' or ``SPACs'', but these terms have the same 
meaning as ``Acquisition Company'' or ``Acquisition Companies'' 
which are the terms used for listing, and continued listing, in 
Sections 102.06 and 802.01B of the Manual. See NYSE Listed Company 
Manual Sections 102.06 and 802.01B.
    \6\ See NYSE Listed Company Manual Section 102.06.
    \7\ Id. The 80% fair market value is the net assets held in 
trust net of amounts disbursed to management for working capital 
purposes and excluding the amount of any deferred underwriting 
discount held in trust.
    \8\ Id.
    \9\ Id.
    \10\ Id.
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    In addition to these safeguards, a SPAC must also meet minimum 
quantitative initial and continued listing standards to list, and 
remain listed on the Exchange, as well as specified continued listing 
standards to remain listed after consummation of a business 
combination.\11\
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    \11\ See notes 16-18, infra and accompanying text.
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B. Option To Hold a Tender Offer in Lieu of a Shareholder Vote

    The Exchange proposes to add an option for the SPAC to conduct a 
tender offer in lieu of a shareholder vote to complete a business 
combination. First, under the proposal if a shareholder vote is not 
held on a business combination for which the SPAC must file and furnish 
a proxy or information statement subject to Regulation 14A or 14C under 
the Exchange Act, the SPAC 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 pursuant to 
Rule 13e-4 and Regulation 14E under the Exchange Act.\12\ The proposal 
states that a SPAC

[[Page 13906]]

using the tender offer option to complete a business combination must 
file tender offer documents with the Commission containing 
substantially the same financial and other information about the 
business combination and the redemption rights as would be required 
under Regulation 14A of the Exchange Act.
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    \12\ See Notice, supra note 4.
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    Second, the proposal also specifies that shareholder vote 
provisions requiring the business combination to be approved by a 
majority of the shares voting at the meeting only apply to shareholder 
votes where the SPAC must file and furnish a proxy or information 
statement subject to Regulation 14A or 14C under the Exchange Act in 
advance of the shareholder meeting.\13\ This provision would, 
therefore, require a SPAC, not subject to the Commission's proxy rules, 
such as a foreign private issuer, to utilize the tender offer option to 
complete a business combination.
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    \13\ Id.
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    Finally, the Exchange is proposing to eliminate the provision that 
prevents a business combination if public shareholders owning a 
threshold amount (not to exceed 40%) of the shares of common stock 
issued in the IPO exercise their conversion rights in connection with 
the business combination.

C. Initial and Continued Listing Standards for SPACs Prior to and After 
Consummation of a Business Combination

    The Exchange proposes to amend the quantitative requirements for 
initial, and continued, SPAC listings. Currently, at the time of its 
initial listing, a SPAC must demonstrate, among other things, an 
aggregate market value of $250 million and a market value of publicly-
held shares of $200 million.\14\ The Exchange proposes to lower the 
initial listing standards for a SPAC to an aggregate market value of 
$100 million and market value of publicly-held shares of $80 
million.\15\
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    \14\ A SPAC must also comply with the requirements of Section 
102.01A of the Manual and have a closing price or, if listing in 
connection with an IPO, an IPO price per share of at least $4.00 at 
the time of initial listing. See NYSE Listed Company Manual Section 
102.06.
    \15\ See Notice, supra note 4.
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    Currently, once listed but prior to the consummation of a business 
combination, a SPAC is subject to suspension and delisting if it does 
not maintain an average aggregate global market capitalization of at 
least $125 million, or an average aggregate global market 
capitalization attributable to its publicly-held shares of at least 
$100 million, in each case over 30 consecutive trading days.\16\ The 
Exchange proposes to lower these pre-business combination continued 
listing standards to require a minimum of $50 million average aggregate 
global market capitalization; and $40 million aggregate global market 
capitalization attributable to publicly-held shares, in both cases over 
30 consecutive trading days.
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    \16\ A SPAC also may be delisted if: (1) Its total stockholders 
falls to less than 400; or (2) the total stockholders is less than 
1,200 and average trading volume is less than 100,000 shares for the 
most recent twelve months; or (3) the number of publicly-held shares 
is less than 600,000. See NYSE Listed Company Manual Section 
802.01B.
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    Currently, the Exchange will notify a SPAC if its average aggregate 
global market capitalization falls below $150 million, or if its 
average aggregate global market capitalization attributable to its 
publicly-held shares falls below $125 million. In conjunction with the 
proposed changes to the continued listing standards noted above, the 
Exchange proposes to lower these notification standards to $75 million 
average aggregate global market capitalization, and to $60 million 
average aggregate global market capitalization attributable to its 
publicly-held shares.\17\
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    \17\ The Exchange proposes that ``publicly-held shares'' would 
exclude shares held by directors, officers, or their immediate 
families and other concentrated holding of 10 percent or more. See 
Notice, supra note 3. Further, for a post-business combination the 
Exchange proposes the same publicly-held shares definition.
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    Currently, under the Manual, the post-business combination company 
of a SPAC would be subject to the continued listing standards 
applicable to operating companies that require $50 million average 
global market capitalization along with stockholders' equity of at 
least $50 million.\18\ The Exchange proposes to add additional 
continued listing standards for the post-business combination company 
of a SPAC in addition to changing the listing procedures the SPAC must 
follow to provide for the listing of the post-business combination 
company. In addition to continuing to require the post-business 
combination company to meet all the continued listing requirements set 
forth in Sections 801 and 802.01 of the Manual, including the market 
capitalization and stockholders' equity requirements described 
above,\19\ under the proposal, immediately after the business 
combination, the company must also maintain: (1) A price per share of 
at least $4.00; (2) a global market capitalization of at least $150 
million; (3) an aggregate market value of publicly-held shares \20\ of 
at least $40 million; and (4) the requirements with respect to 
shareholders and publicly-held-shares set forth in Section 102.01A of 
the Manual for companies listing in connection with an IPO.\21\ 
Furthermore, the Exchange proposes that in order to list the post-
business combination company the SPAC must submit an original listing 
application, which must be approved by the Exchange prior to 
consummation of the business combination.
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    \18\ See NYSE Listed Company Manual Section 802.01B. Under this 
provision, to be below compliance, a listed company would have to be 
below both the $50 million average global market capitalization and 
$50 million shareholders' equity requirements consecutively for 30 
trading days. This continued listing standard was formally referred 
to as the ``Earnings Test.''
    \19\ Id.
    \20\ See note 19, supra.
    \21\ Currently, a company listing in connection with an IPO must 
have a minimum of 400 holders of 100 or more shares and 1,100,000 
publicly-held shares. See NYSE Listed Company Manual Section 
102.01A.
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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 the Exchange Act 
and the rules and regulations thereunder applicable to a national 
securities exchange and, in particular, the requirements of Section 
6(b) of the Exchange Act and the rules and regulations thereunder.\22\ 
Specifically, the Commission finds that the proposal is consistent with 
Sections 6(b)(5) of the Exchange Act,\23\ in particular, in that it is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and in general, to protect investors and the public 
interest; and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \22\ 15 U.S.C. 78f. In approving this proposed rule change, the 
Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \23\ 15 U.S.C. 78f(b)(5).
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    The development and enforcement of adequate standards governing the 
initial and continued listing of securities on an exchange is an 
activity of critical importance to financial markets and the investing 
public. Listing standards, among other things, serve as a means for an 
exchange to screen issuers and to provide listed status only to bona 
fide companies that have, or in the case of an IPO, will have 
sufficient public float, investor base, and trading interest to provide 
the depth and liquidity necessary to promote fair and orderly

[[Page 13907]]

markets. Adequate standards are especially important given the 
expectations of investors regarding exchange trading and the imprimatur 
of listing on a particular market. Once a security has been approved 
for initial listing, maintenance criteria allow an exchange to monitor 
the status and trading characteristics of that security to ensure that 
it continues to meet the exchange's standards for market depth and 
liquidity so that fair and orderly markets can be maintained.
    As noted above, SPACs are companies that raise capital in IPOs, 
with the purpose of purchasing existing operating companies or assets 
within a certain time frame. Because of the unique structure of SPACs, 
investors do not know the ultimate business of the company before a 
business combination, similar to a blank check company. Therefore, the 
Commission approved the Exchange's listing standards for SPACs 
containing certain provisions that were similar in some respects to the 
investor protection measures contained in Rule 419 under the Securities 
Act of 1933 (``Securities Act'').\24\ One of the important investor 
protection safeguards incorporated into the Exchange's listing rules 
for SPACs is the ability of public shareholders to convert their shares 
for a pro rata share of the cash held in the trust account if they vote 
against a business combination. In approving this provision, the 
Commission noted that the conversion rights will help to ensure that 
public shareholders who disagree with management's decision with 
respect to a business combination have adequate remedies.\25\
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    \24\ See 17 CFR 230.419. Rule 419 of the Securities Act applies 
to blank check companies issuing penny stock as defined under Rule 
3a51-1(a)(2) of the Exchange Act. See 17 CFR 240.3a51-1(a)(2). See 
also, Securities Exchange Act Release No. 57785 (May 6, 2008), 73 FR 
27597 at 27599 (May 13, 2008) (``NYSE Order'').
    \25\ The Commission also noted, among other things, that the 
Exchange would, immediately prior to consummation of a business 
combination, consider whether the listing of the post-business 
combination company would be in the best interest of the Exchange 
and the public interest and would have authority to suspend and 
delist the SPAC under this standard. This provision will continue to 
apply to all business combinations, whether approved through a 
shareholder vote or conducted through a tender offer, under the 
proposed rule change. See NYSE Order, 73 FR at 27600. See also, NYSE 
Listed Company Manual Section 802.01B. In addition, the Exchange 
will also continue to consider whether the business combination 
gives rise to a ``back-door listing'' as set forth in Section 
703.08(e) of the Manual, irrespective of the method used to complete 
the business combination. See NYSE Listed Company Manual Section 
802.01B.
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    The proposal would provide an option for the SPAC to hold a tender 
offer in lieu of a shareholder vote on a proposed business combination. 
The Exchange noted that certain hedge funds and other activist 
investors have sometimes employed a strategy of acquiring an interest 
in a SPAC and then using their ability to vote against a proposed 
business combination to obtain additional consideration not available 
to other shareholders in a practice known as ``greenmail.'' \26\
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    \26\ See Notice, note 4, supra.
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    The Commission notes that shareholders will receive redemption 
rights and comparable financial and other information about the 
business combination irrespective of whether the SPAC's business 
combination is consummated through a tender offer or a shareholder 
vote. The Commission believes that shareholders who are not in favor of 
a business combination should continue to have an adequate remedy under 
the Exchange's proposal if they disagree with management's decision 
with respect to a business combination, and that the Exchange's SPAC 
rules will continue to have safeguards to address investor protection, 
while at the same time allowing the greenmail abuses noted by the 
Exchange to be addressed. Based on the above, the Commission finds that 
this proposal is consistent with the requirements of the Act and in 
particular the investor protection standards under Section 6(b)(5) of 
the Exchange Act.
    The Exchange is also proposing to add language to Section 102.06 of 
the Manual which concerns the shareholder voting requirements 
applicable to business combinations of SPACs. Under this change if a 
SPAC holds a shareholder vote to approve a business combination, the 
provisions only apply when the SPAC must file and furnish a proxy or 
information statement subject to Regulation 14A or 14C under the 
Exchange Act in advance of the shareholder meeting. This change, viewed 
together with the changes discussed above, allowing a SPAC to 
consummate a business combination through a tender offer rather than a 
shareholder vote, mean that certain SPACs that are not required under 
the Federal securities laws to comply with the Commission's proxy 
solicitation rules when soliciting proxies, will have to follow the 
tender offer provisions under the Exchange's rules.\27\ Under this 
provision, the tender offer documents are specifically required to 
contain substantially the same financial and other information about 
the business combination and redemption rights, as would be required 
under the proxy rules in Regulation 14A of the Exchange Act. The 
Commission notes that this proposal would clarify the manner in which a 
shareholder vote is held and the information that would be required by 
the SPAC to send to shareholders. Further, it ensures that all 
investors will be receiving the same information about a proposed 
business combination whether it is holding a vote and required by law 
to follow the proxy rules or conducting a tender offer under the 
conditions set forth in the Exchange's rules. This provision also does 
not preclude a SPAC that does not have to comply with the Federal proxy 
rules when soliciting proxies from having a shareholder vote, but 
merely ensures, through the tender offer process, that the SPAC will be 
required to provide comparable information. Based on the above, the 
Commission finds that this portion of the proposal is consistent with 
the requirements of the Exchange Act, and in particular, the investor 
protections requirements under Section 6(b)(5) of the Act.\28\
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    \27\ For example, registered securities of foreign private 
issuers are exempt from the proxy rules. See Section 3(a)12-3 of the 
Exchange Act.
    \28\ The Commission notes that it has previously approved a 
substantially similar rule concerning this portion of the Exchange's 
proposal for other national securities exchanges. See Securities 
Exchange Act Release No. 63366 (November 23, 2010), 75 FR 74119 
(November 30, 2010) (NYSEAmex-2010-103) and Securities Exchange Act 
Release No. 63607 (December 23, 2010), 75 FR 82420 (December 30, 
2010) (Nasdaq-2010-137).
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    Further, the Exchange has also proposed to eliminate the provision 
that a business combination cannot be consummated by the SPAC if the 
public shareholders owning in excess of a threshold amount (to be set 
no higher than 40%) of the shares of common stock exercise their 
conversion rights. The Commission notes that we have approved SPAC 
listing rules on other markets that do not contain a similar 
requirement. If a SPAC wants to adopt such a provision, however, it 
will still be permitted to do so. Based on the above, it is reasonable 
to allow the Exchange to not mandate such a requirement. The 
Commission, therefore, finds this change is consistent with the 
requirements of Section 6(b)(5) of the Exchange Act.\29\
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    \29\ Id.
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    The proposal would also lower the initial listing standards 
applicable to SPACs from an aggregate market value of least $250 
million to $100 million and market value of publicly-held shares of at 
least $200 million to $80 million. Under the proposal, a SPAC would be 
promptly suspended from trading and delisted if, over any 30 day 
consecutive trading period, its average aggregate global capitalization 
falls below $50 million or its average

[[Page 13908]]

aggregate global market capitalization of publicly-held shares falls 
below $40 million.\30\ As noted above, current rules set these dollar 
limits at $125 million and $100 million, respectively. The proposal 
would further lower the threshold for Exchange notification of the SPAC 
if aggregate global market capitalization falls below $75 million, as 
opposed to $150 million under the current rule, and aggregate global 
market capitalization attributable to publicly-held shares falls below 
$60 million, as opposed to $125 million under the current rule. The 
Commission notes that, despite the fact that the proposed reduction to 
SPAC listing and continued listing standards are significant on a 
percentage basis, the proposed requirements remain higher than 
comparable listing standards on other markets that list and trade SPACs 
and should be sufficient to promote fair and orderly markets.\31\
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    \30\ The Commission notes that the current distribution 
standards and other continued listing standards applicable to pre-
business combination SPAC will remain unchanged. See NYSE Listed 
Company Manual Section 801 and 802.
    \31\ For example, initial listing standards on Nasdaq's Global 
Market and NYSE MKT require, among other things, a market value of 
listed securities of $75 million and a market value of publicly-held 
shares of at least $20 million. See Nasdaq Rule 5405 and Section 
101(d) of NYSE MKT Company Guide. The continued listing standards 
for Nasdaq Global Market and NYSE MKT require, among other things, 
at least $50 million in market value and $15 million market value in 
publicly-held shares. See Nasdaq Rule 5450 and Section 1003(a) of 
NYSE MKT Company Guide. The Exchange's other quantitative standards 
for SPACs to list, and continue to be listed, such as, for example, 
the holder requirements, will also continue to be comparable to 
Nasdaq Global Market standards with the changes being approved in 
this order.
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    Lastly, the Exchange proposes to add additional continued listing 
standards after the consummation of a business combination in 
connection with the lowering of the initial listing standards for a 
SPAC. These new standards, as noted above, will be in addition to the 
existing continued listing standards that currently apply to the post-
business combination company.\32\ The Commission notes that the 
additional requirements should strengthen the continued listing 
standards applicable to the post-business combination company by 
requiring, in order to remain listed on the Exchange, such company to 
meet at least a price per share of $4 and the initial listing 
distribution standards set forth in Section 102.01A of the Manual \33\ 
as well as have sufficient market capitalization and market value of 
publicly-held shares to ensure adequate depth and liquidity.\34\ The 
proposed standards would also require a SPAC that is planning to 
consummate a business combination to submit an original listing 
application that must be approved by the Exchange prior to the listing 
of the post-business combination company. The Commission believes the 
additional requirement for the SPAC to submit, and receive Exchange 
approval of its, listing application to continue to list on the 
Exchange as a post-business combination company should allow the 
Exchange to reevaluate whether the newly formed operating company is 
suitable for continued listing and will have sufficient market depth 
and liquidity for continued trading.\35\ The new requirements also make 
the continued listing process for a post-business combination company 
more similar to the process for any new listing applicant, which is 
consistent with the unique characteristics of a SPAC that lists with 
the intention to find a business combination with an operating company.
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    \32\ See note 20, supra and accompanying text.
    \33\ The distribution standards of Section 102.01A of the Manual 
set forth minimum standards for the number of round lot shareholders 
and number of publicly-held shares required for initial listing. See 
NYSE Listed Company Manual Section 102.01A.
    \34\ The Exchange proposes to require at a minimum $150 million 
of global market capitalization and $40 million of aggregate market 
value of publicly-held shares. See proposed NYSE Listed Company 
Manual Section 802.01B.
    \35\ The continued application of the back-door listing 
provisions should also help ensure that a company not otherwise 
qualified for original listing could get listed on the Exchange 
through a business combination with a SPAC. See NYSE Listed Company 
Manual Section 802.01B of the Manual. See also note 27, supra and 
accompanying text.
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    Based on the foregoing, the Commission finds that the proposed 
changes to listing standards are consistent with the requirements of 
the Exchange Act.

IV. Conclusion

    It is therefore ordered that pursuant to Section 19(b)(2) of the 
Exchange Act \36\ that the proposed rule change (SR-NYSE-2016-72) be, 
and hereby is, approved.
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    \36\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
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    \37\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-05137 Filed 3-14-17; 8:45 am]
 BILLING CODE 8011-01-P