[Federal Register Volume 84, Number 21 (Thursday, January 31, 2019)]
[Notices]
[Pages 855-858]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-00499]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84984; File No. SR-NYSE-2018-46]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Amend the Listed Company Manual for Acquisition
Companies To Reduce the Continued Listing Standards for Public
Stockholders From 300 to 100 and To Enable the Exchange To Exercise
Discretion To Allow Acquisition Companies a Reasonable Time Period
Following a Business Combination To Demonstrate Compliance With the
Applicable Quantitative Listing Standards
January 15, 2019.
I. Introduction
On October 1, 2018, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend the Listed Company Manual (``Manual'')
for Special Purpose Acquisition Companies \3\ (``SPACs'') to
[[Page 856]]
reduce the minimum number of public stockholders required for continued
listing from 300 to 100, and to enable the Exchange to exercise
discretion to allow SPACs a reasonable time period following a business
combination to demonstrate compliance with the applicable quantitative
listing standards. The proposed rule change was published in the
Federal Register on October 18, 2018.\4\ The Commission received one
comment letter on the proposal.\5\ On November 29, 2018, the Commission
extended the time period within which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to approve or disapprove the proposed rule change,
to January 16, 2019.\6\ This order institutes proceedings under Section
19(b)(2)(B) of the Act to determine whether to approve or disapprove
the proposal.\7\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Throughout this order, we have used the term ``SPAC'' or
``SPACs.'' These terms have the same meaning as ``Acquisition
Company,'' which is the term used by the Exchange in its current
proposed rule filing.
\4\ See Securities Exchange Act Release No. 84420 (October 12,
2018), 83 FR 52854 (October 18, 2018) (``Notice'').
\5\ See Letter to Secretary, Commission, dated November 8, 2018,
from Jeffrey P. Mahoney, General Counsel, Council of Institutional
Investors (``CII Letter'').
\6\ See Securities Exchange Act Release No. 84680 (November 29,
2018), 83 FR 62942 (December 6, 2018).
\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal and Summary of Comment
A. Background on SPACs
A SPAC is a special purpose company whose business plan is to raise
capital in an initial public offering (``IPO'') and, within a specific
period of time, engage in a merger or acquisition with one or more
unidentified companies. Among other things, a SPAC must keep 90% of the
gross proceeds of its IPO in an escrow account through the date of a
business combination.\8\ The SPAC must complete one or more business
combinations, having an aggregate fair market value of at least 80% of
the value of the escrow account, within 36 months of the effectiveness
of the IPO registration statement.\9\ Additionally, public shareholders
who object to a business combination have the right to convert their
common stock into a pro rata share of the funds held in escrow.\10\
Following a business combination, the combined company must meet the
Exchange's requirements for initial listing of an operating
company.\11\
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\8\ See Section 102.06 of the Manual.
\9\ Id.
\10\ See Section 102.06(b) of the Manual.
\11\ This includes the requirement to maintain a minimum of 400
round lot holders. See Sections 102.01A and 802.01B(ii) of the
Manual.
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B. Description of the Proposed Changes to SPAC Listing Standards
The Exchange has proposed two changes to its SPAC listing
requirements. First, the Exchange has proposed to reduce the minimum
number of public stockholders required for continued listing of a SPAC,
prior to consummation of a business combination, from 300 to 100.\12\
According to the Exchange, SPACs have difficulty demonstrating
compliance with the 300 public stockholders requirement because there
is limited retail investor interest in SPACs, and those who do invest
in SPACs tend to hold their shares until a transaction is announced.
The Exchange also stated its belief that the number of stockholders is
less relevant for SPACs than for operating companies, because ``the
price of [a SPAC] is based primarily on the value of the funds it holds
in trust, and the [SPAC]'s shareholders have the right to redeem their
shares for a pro rata share of that trust in conjunction with the
Business Combination.'' For these reasons, NYSE asserted that SPACs,
historically, ``trade close to the value in the trust, even when they
have had few shareholders,'' and that these ``trading patterns suggest
that the low number of shareholders has not resulted in distorted
prices.'' \13\
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\12\ Public stockholders exclude holders that are directors,
officers, or their immediate families and holders of other
concentrated holdings of 10% or more. See Section 802.01B(ii) of the
Manual.
\13\ The Exchange also articulated some other arguments
including that Exchange Traded Funds are ``somewhat similar'' and do
not have as a high a continued listing shareholder requirements as
SPACs. See Notice, supra note 4.
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Second, the Exchange has proposed to provide itself discretion to
allow SPACs a reasonable time period following a business combination
to demonstrate compliance with the applicable quantitative listing
standards for an operating company, rather than requiring SPACs to
immediately comply with such standards. These listing standards
include: (1) A price per share of at least $4.00; (2) a global market
capitalization of at least $150,000,000; (3) an aggregate market value
of publicly-held shares of at least $40,000,000; and (4) other
quantitative requirements set forth in Section 102.01A of the Manual,
including the requirement to maintain a minimum of 400 round lot
holders and 1,100,000 publicly held shares.\14\ The Exchange has
proposed to delete the language in Section 802.01B of the Manual
requiring the combined entity to meet these listing standards
``immediately upon consummation of the Business Combination.'' The
Exchange represented that the purpose of this proposed amendment is to
``allow the Exchange to exercise discretion to allow companies a
reasonable period of time following a business combination to
demonstrate compliance with the applicable quantitative listing
standards, including the shareholders requirement.'' According to the
Exchange, it can be difficult for a company, once listed, to obtain
evidence demonstrating the number of its shareholders, because many
accounts are held in street name, so companies must seek this
information from broker-dealers or their third-party agents. The
Exchange stated that the process of identifying shareholders is
especially burdensome for SPACs at the time of the business
combination, because SPAC shareholders have the right to request
redemption of their securities until immediately before consummation of
the business combination.
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\14\ See Section 802.01B of the Manual. See also note 13, supra.
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C. Summary of Comment Letter
The Commission received one comment letter on the proposal.\15\ The
commenter stated it could not support the current proposal as submitted
``because it does not provide sufficient information for us to make a
determination as to whether our members and the capital markets would
benefit from the proposed changes.'' The commenter referenced its prior
comments on similar proposals from the Exchange and Nasdaq, both of
which were subsequently withdrawn.\16\ The commenter noted that the
proposed reduction in the minimum number of holders from 300 to 100 is
far more modest than eliminating it outright, as was proposed in the
prior proposals, but believed that additional information would be
helpful in determining
[[Page 857]]
whether the proposal would benefit investors.\17\
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\15\ See supra note 5.
\16\ See SR-NYSE-2017-53 (proposal to, among other things, lower
the initial holders requirement from 300 to 150 round lot holders
and to eliminate the continued holders requirement from 300 public
stockholders to zero, and to impose a 30-day deadline to demonstrate
compliance with certain initial listing requirements following a
business combination). The Exchange filed the proposal on November
16, 2017. The Exchange withdrew the proposal on June 21, 2018, after
the Commission instituted proceedings to determine whether to
approve or disapprove the proposal. See Securities Exchange Act
Release Nos. 82180 (November 30, 2017), 82 FR 57632 (December 06,
2017); 82531 (January 18, 2018), 83 FR 3371 (January 24, 2018);
82804 (March 05, 2018), 83 FR 10530 (March 09, 2018); 83355 (May 31,
2018), 83 FR 26331 (June 06, 2018); and 83570 (June 29, 2018), 83 FR
31628 (July 6, 2018). See also SR-Nasdaq-2017-087, Order Instituting
Proceedings, Securities Exchange Act Release No. 82478 (January 9,
2018), 83 FR 2278 (January 16, 2018)
\17\ See CII Letter at 2-3.
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IV. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2018-46 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act to determine whether the proposal should be
approved or disapproved.\18\ Institution of such proceedings is
appropriate at this time in view of the legal and policy issues raised
by the proposal, as discussed below. Institution of disapproval
proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved.
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\18\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act, the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis and input concerning the proposed rule change's consistency
with the Act \19\ and, in particular, with Section 6(b)(5) of the Act,
which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to remove impediments to and perfect the mechanism of free and open
market and a national market system, and, in general, to protect
investors and the public interest.\20\
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\19\ 15 U.S.C. 78f(b)(5).
\20\ Id.
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The Commission has consistently recognized the importance of the
minimum number of holders and other similar requirements in exchange
listing standards. For example, the Commission has repeatedly stated in
approving exchange listing requirements, including NYSE's original SPAC
listing standards, that the development and enforcement of adequate
standards governing the listing of securities on an exchange is an
activity of critical importance to financial markets and the investing
public.\21\ Among other things, such listing standards help ensure that
exchange listed securities have sufficient public float, investor base,
and trading interest to provide the depth and liquidity necessary to
promote fair and orderly markets.
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\21\ See, e.g., Securities Exchange Act Release Nos. 57785 (May
6, 2008), 73 FR 27597 (May 13, 2008) (stating that the distribution
standards, which includes exchange holder requirements ``. . .
should help to ensure that the [SPACs'] securities have sufficient
public float, investor base, and liquidity to promote fair and
orderly markets); 58228 (July 25, 2008), 73 FR 44794 (July 31,
2008).
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NYSE proposes to lower the minimum number of holders required for
continued listing of a SPAC, in the period prior to consummation of a
business combination, from 300 public holders to 100 public holders. In
support of its proposal, NYSE asserts, among other things, that SPACs
often have difficulty demonstrating compliance with the minimum number
of holders requirements because there is limited retail investor
interest in them, and that this requirement is less relevant for SPACs
because they historically trade close to the value of the funds held in
trust. The Commission, however, notes that NYSE has not provided any
supporting evidence that SPACs have more difficulty complying with the
existing minimum number of holders requirements than other listed
companies. Further, the Commission does not believe that it is clear
from NYSE's proposal how the historic SPAC trading patterns cited by
NYSE bear on the role of the minimum number of holders requirements in
maintaining fair and orderly markets, particularly since NYSE's
observation was made when the current minimum number of holder
requirements were in place.
The Exchange also proposes to provide itself discretion to allow
SPACs a reasonable time period following a business combination to
demonstrate compliance with the applicable quantitative listing
standards for an operating company, rather than requiring SPACs to
immediately comply with such standards. While the NYSE's current
listing standards require a SPAC to have at least 300 public holders
prior to the business combination, NYSE's proposal would reduce that
requirement to as few as 100 public holders. Following consummation of
the business combination, the SPAC would be required to have at least
400 round lot holders. It is not clear from NYSE's proposal that such a
structure is workable, or how a listed SPAC would ensure it is in a
position to sufficiently increase its number of holders, even within
the ``reasonable time period'' contemplated by NYSE. Finally, the
Exchange offered no explanation as to why SPACs require additional
time, following consummation of the business combination, to meet the
all of the other applicable quantitative listing standards for
operating companies, including those relating to share price, global
market capitalization, and the market value of publicly-held shares.
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 [`SRO'] that proposed the rule change.''
\22\ 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,\23\ and any failure of an
SRO to provide this information may result in the Commission not having
a sufficient basis to make an affirmative finding that a proposed rule
change is consistent with the Exchange Act and the applicable rules and
regulations.\24\
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\22\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\23\ See id.
\24\ See id.
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For these reasons, the Commission believes it is appropriate to
institute proceedings pursuant to Section 19(b)(2)(B) of the Act to
determine whether the proposal should be approved or disapproved.
V. Solicitation of Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provisions of the Act, or
the rules and regulations thereunder. Although there do not appear to
be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\25\
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\25\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Congr., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by February 21, 2019. Any
[[Page 858]]
person who wishes to file a rebuttal to any other person's submission
must file that rebuttal by March 7, 2019. The Commission asks that
commenters address the sufficiency of the Exchange's statements in
support of the proposal which are set forth in the Notice, in addition
to any other comments they may wish to submit about the proposed rule
change. In particular, the Commission seeks comment, including where
relevant, any specific data, statistics, or studies, on the following:
1. Would the proposal ensure that a sufficient liquid market exists
for the shares of SPACs on the Exchange? Why or why not?
2. With a lower requirement of 100 public stockholders, would the
shares of SPACs still trade close to their redemption value as the
Exchange has stated? If yes, would that trading pattern continue after
an announcement of a business combination?
3. With a lower requirement of 100 public stockholders, could
shares of SPACs be more prone to manipulation, either post-IPO or at
the time of the business combination announcement (but before
consummation of the business combination)?
4. Is there additional support for the claims that SPACs trade
consistently as stated in the proposal? If so, what specific data
should be provided, reviewed, and analyzed? How many SPACs have not
been able to meet the Exchange's minimum number of public stockholders
requirement pre-business combination, and how many stockholders did
these SPACs have? How many SPACs have not been able to meet the
applicable minimum number holders and other requirements immediately
upon consummation of the business combination, and how were they
deficient? How many of these SPACs have been delisted for failing to
meet the applicable listing standards, and how long did they trade on
the Exchange prior to delisting?
5. The Exchange asserts that obtaining evidence demonstrating the
number of shareholders after a business combination is ``especially
burdensome for [SPACs].'' The Commission notes that the process of
obtaining the number of shareholders is similar for all listed
companies. Do commenters think SPACs are particularly burdened by this
process and, if so, why?
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2018-46 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2018-46. 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 (http://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-2018-46 and should be submitted on
or before February 21, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-00499 Filed 1-30-19; 8:45 am]
BILLING CODE 8011-01-P