[Federal Register Volume 84, Number 119 (Thursday, June 20, 2019)]
[Notices]
[Pages 28879-28881]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-13075]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86117; File No. SR-NYSE-2018-46]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Disapproving a Proposed Rule Change To Amend the Listed Company Manual 
for Special Purpose Acquisition Companies To Reduce the Continued 
Listing Standards for Public Holders From 300 to 100 and To Enable the 
Exchange To Exercise Discretion To Allow Special Purpose Acquisition 
Companies a Reasonable Time Period Following a Business Combination to 
Demonstrate Compliance With the Applicable Quantitative Listing 
Standards

June 14, 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'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend the NYSE Listed Company 
Manual (``Manual'') for Special Purpose Acquisition Companies 
(``SPACs'') \3\ to reduce the minimum number of public holders 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 
for comment 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 designated a longer 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.\6\ On January 15, 2019, the Commission issued 
an order instituting proceedings (``OIP'' or ``Order Instituting 
Proceedings'') under Section 19(b)(2)(B) of the Act to determine 
whether to approve or disapprove the proposed rule change.\7\ The 
Commission received one additional comment letter, from the same 
commenter, on the OIP.\8\ On April 15, 2019, the Commission designated 
a longer period within which to issue an order approving or 
disapproving the proposed rule change.\9\ This order disapproves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission notes that 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 
the Manual.
    \4\ See Securities Exchange Act Release No. 84420 (October 12, 
2018), 83 FR 52854 (October 18, 2018) (``Notice'').
    \5\ See Letter to Secretary, Commission, from Jeffrey P. 
Mahoney, General Counsel, Council of Institutional Investors, dated 
November 8, 2018 (``CII Letter'').
    \6\ See Securities Exchange Act Release No. 84680 (November 29, 
2018), 83 FR 62942 (December 8, 2018).
    \7\ See Securities Exchange Act Release No. 84984 (January 15, 
2019), 84 FR 0855 (January 31, 2019).
    \8\ See Letter to Secretary, Commission, from Jeffrey P. 
Mahoney, General Counsel, Council of Institutional Investors, dated 
February 11, 2019 (``CII Letter II'').
    \9\ See Securities Exchange Act Release No. 85644 (April 15, 
2019), 84 FR 16299 (April 18, 2019). The date was extended until 
June 15, 2019.
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II. Description of the Proposal

A. Background on SPACs

    A SPAC is a special purpose acquisition 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 until the 
date of a business combination.\10\ 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.\11\ 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.\12\ Following a business combination, the combined company 
must meet the Exchange's requirements for initial listing of an 
operating company.\13\
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    \10\ See Section 102.06 of the Manual. Section 102.06 also 
contains additional quantitative requirements to list a SPAC.
    \11\ See id.
    \12\ See Section 102.06(b) of the Manual.
    \13\ This includes the requirement to maintain a minimum of 400 
round lot holders. See Sections 102.01A and 802.01B of the Manual.

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[[Page 28880]]

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 number of 
public stockholders required for continued listing of a SPAC, prior to 
consummation of a business combination, from 300 to 100.\14\ According 
to the Exchange, SPACs have difficulty demonstrating compliance with 
the 300 public stockholders continued listing 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 a 
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.'' \15\
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    \14\ 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 ``Criteria 
for Acquisition Companies'' of the Manual.
    \15\ The Exchange also articulated other arguments, including 
that Exchange Traded Funds are ``somewhat similar'' and do not have 
as high of a continued listing shareholder requirement as SPACs. See 
Notice, supra, note 4.
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    Second, the Exchange has proposed to give 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.\16\ 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.'' 
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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    \16\ See Section 802.01B of the Manual.
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III. Summary of Comments

    The Commission received one comment letter on the proposal and an 
additional comment letter, from the same commenter, in response to the 
OIP.\17\ The commenter stated that it could not support the 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.'' \18\ The commenter 
referenced its prior comments on similar proposals from the Exchange 
and Nasdaq, both of which were subsequently withdrawn.\19\ 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 whether the 
proposal would benefit investors.
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    \17\ See supra notes 5 and 8.
    \18\ See supra note 5.
    \19\ 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 requirements following a business 
combination). The proposal was withdrawn on June 21, 2018 after the 
Commission institute proceedings to determine whether to approve or 
disapprove the proposal. See Notice of Withdrawal, Securities 
Exchange Act Release No. 83570 (June 29, 2018), 83 FR 31628 (July 6, 
2018). See also SR-Nasdaq-2017-87 (proposal to reduce round lot 
holders on Nasdaq Capital Market for initial listing From 300 to 150 
and eliminate public holders for continued listing from 300 to zero, 
and impose a deadline to demonstrate compliance with initial listing 
requirements within 30 Days following each business combination). 
The proposal was withdrawn on June 1, 2018 after the Commission 
instituted proceedings to determine whether to approve or disapprove 
the proposal. See Notice of Withdrawal, Securities Exchange Act 
Release No. 83383 (June 5, 2018), 83 FR 27055 (June 11, 2018).
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    In response to the OIP, the commenter expressed concerns broadly 
that competition between the Exchange and Nasdaq was weakening listing 
standards, ``lower[ing] the bar for what goes in the world of SPACs,'' 
\20\ and is in conflict with the Exchange Act requirement that exchange 
rules be designed to protect investors and the public interest. With 
respect to the Exchange's proposal, the commenter stated that it did 
not believe the Exchange provided sufficient information to determine 
whether the commenter's members and the capital markets would benefit 
from the proposed changes.
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    \20\ See supra note 8.
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IV. Discussion and Commission Findings

    Under Section 19(b)(2)(B) of the Act,\21\ the Commission shall 
approve a proposed rule change by a self-regulatory organization if the 
Commission finds that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to such organization.\22\ The Commission shall 
disapprove a proposed rule change if the Commission does not make such 
a finding.\23\ 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,'' 
and a ``mere assertion that the proposed rule change is consistent with 
those requirements . . . is not sufficient.'' \24\
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    \21\ See 15 U.S.C. 78s(b)(2)(C).
    \22\ See 15 U.S.C. 78s(b)(2)(C)(i).
    \23\ See 15 U.S.C. 78s(b)(2)(C)(ii).
    \24\ 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, and any failure of a 
self-regulatory organization to provide this information may result in 
the Commission not having a sufficient basis to make an affirmative 
finding that a proposed rule change is consistent with the Act and the 
applicable rules and regulations.\25\
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    \25\ See id.
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    For the reasons discussed below, the Commission is disapproving the 
proposed rule change because the information before the Commission is 
insufficient to support a finding that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities

[[Page 28881]]

exchange.\26\ Specifically, the Commission concludes that it does not 
have sufficient information to determine that the proposed rule change 
is consistent with Section 6(b)(5) of the Act, and in particular the 
requirements that a national securities exchange's rules be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, and, in general, to protect 
investors and the public interest.\27\
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    \26\ In disapproving the 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).
    \27\ See 15 U.S.C. 78f(b)(5).
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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.\28\ 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.\29\
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    \28\ See, e.g., Securities Exchange Act Release No. 57785 (May 
6, 2008), 73 FR 27597 (May 13, 2008) (stating that the distribution 
standards, which include exchange holders requirements ``. . . 
should help to ensure that the [SPACs'] securities have sufficient 
public float, investor base, and liquidity to promote fair and 
orderly markets''). See also Securities Exchange Act Release No. 
58228, (July 25, 2008) 73 FR 44794 (July 31, 2008) (approving Nasdaq 
initial and continued listing standards for SPACs).
    \29\ Id.
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    NYSE has proposed 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, and without distorted prices, even when they have few 
shareholders. NYSE, however, has provided no evidence (such as, for 
example, information about the number of SPAC delisting proceedings as 
compared to the number of delisting proceedings for other types of 
listed companies) that SPACs in fact have difficulty complying with the 
existing minimum number of holders requirements. In addition, to 
support its position that the minimum number of holders requirements 
are less relevant for SPACs, NYSE made certain representations about 
the current trading characteristics of SPACs when they have few 
shareholders. The Commission notes, however, that NYSE's observations 
were made when the current minimum number of holders requirements were 
in place, and NYSE has provided no evidence that the same observations 
would be repeated if these requirements were substantially reduced, as 
proposed. In the OIP, the Commission asked several questions relating 
to this aspect of the proposal, including whether it would ensure a 
sufficient liquid market for NYSE-listed SPACs, whether SPACs would 
still trade close to their redemption value or be more prone to 
manipulation (both before and after the business combination 
announcement), and whether there was any data to support NYSE's 
assertions about the nature of SPAC trading or the difficulties faced 
by SPACs in meeting existing listing standards. NYSE offered no 
additional response, arguments or data in response to these questions 
or in support of its proposal, nor did any other commenter.
    NYSE also has proposed to provide itself discretion to allow SPACs 
a reasonable time period following a business combination to 
demonstrate compliance with the minimum number of holders and other 
applicable quantitative listing standards for an operating company, 
rather than requiring SPACs to immediately comply with such standards. 
NYSE, however, has provided no supporting evidence (such as, for 
example, information about the number of SPAC delisting proceedings as 
compared to the number of delisting proceedings for other types of 
listed companies) that SPACs have particular difficulties demonstrating 
compliance with these important requirements. In addition, the 
Commission notes that, while 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. In 
the OIP, the Commission questioned whether such a structure would be 
workable, and how a listed SPAC would ensure it is in a position to 
sufficiently increase its number of holders from the proposed 100 
public holder threshold (as opposed to the current 300 threshold), even 
within the ``reasonable time period'' contemplated by NYSE. The 
Commission further noted that the Exchange offered no explanation as to 
why SPACs require additional time, following the consummation of a 
business combination, to meet 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 the 
publicly-held shares. However, as with the other concerns raised by the 
Commission in the OIP, NYSE offered no additional response, arguments 
or data in response to these concerns or in support of its proposal, 
nor did any other commenter.
    For the reasons discussed above, the Commission concludes that the 
record before it does not provide a basis to conclude that the Exchange 
has met its burden under the Act and the Commission's Rules of Practice 
to demonstrate that its proposed rules change is consistent with 
Section 6(b)(5) of the Act.\30\
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    \30\ See 15 U.S.C. 78f(b)(5).
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V. Conclusion

    For the reasons set forth above, the Commission does not find, 
pursuant to Section 19(b)(2) of the Act,\31\ that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and in particular, with Section 6(b)(5) of the Act.\32\
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    \31\ See 15 U.S.C. 78s(b)(2).
    \32\ See 15 U.S.C. 78f(b)(5).
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    It is therefore ordered that, pursuant to Section 19(b)(2) of the 
Act,\33\ the proposed rule change (SR-NYSE-2018-46) be, and it hereby 
is, disapproved.
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    \33\ See 15 U.S.C. 78s(b)(2).
    \34\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
Vanessa A. Countryman,
Acting Secretary.
[FR Doc. 2019-13075 Filed 6-19-19; 8:45 am]
 BILLING CODE 8011-01-P