[Federal Register Volume 85, Number 245 (Monday, December 21, 2020)]
[Notices]
[Pages 83113-83115]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28066]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90682; File No. SR-NASDAQ-2020-062]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Amend Listing Rules Applicable to Special 
Purpose Acquisition Companies Whose Business Plan Is To Complete One or 
More Business Combinations

December 16, 2020.

I. Introduction

    On September 3, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend its listing rules to permit companies 
whose business plan is to complete one or more business combinations 
(``SPACs'' or ``Acquisition Companies'') 15 calendar days following the 
closing of a business combination to demonstrate that the SPAC has 
satisfied the applicable round lot shareholder requirement. The 
proposed rule change was published for comment in the Federal Register 
on September 22, 2020.\3\ On November 4, 2020, pursuant to Section 
19(b)(2) of the Exchange Act,\4\ the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change to December 21, 2020.\5\ The 
Commission has received no comment letters on the proposed rule change. 
The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \6\ to determine whether to approve or 
disapprove 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. 89897 (September 16, 
2020), 85 FR 59574.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 90340, 85 FR 71704 
(November 10, 2020).
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change

    A SPAC is a company whose business plan is to complete an initial 
public offering and engage in a merger or acquisition with one or more 
unidentified companies within a specific period of time.\7\ Nasdaq 
listing rules, among other things, require a SPAC to keep at least 90% 
of the proceeds from its initial public offering in an escrow 
account,\8\ and to complete one or more business combinations having an 
aggregate fair market value of at least 80% of the value of the escrow 
account within a specified period of time.\9\ Following each business 
combination, the combined company must meet the requirements for 
initial listing on Nasdaq.\10\ If the combined company does not meet 
the initial listing requirements following a business combination, 
Nasdaq staff will issue a Staff Delisting Determination under Nasdaq 
Rule 5810.\11\
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    \7\ See Securities Exchange Act Release No. 58228 (July 25, 
2008), 73 FR 44794 (July 31, 2008) (adopting the predecessor to IM-
5101-2).
    \8\ See Nasdaq IM-5101-2(a).
    \9\ See Nasdaq IM-5101-2(b).
    \10\ See Nasdaq IM-5101-2(d). If a shareholder vote on the 
business combination is held, public shareholders voting against a 
business combination must have the right to convert their shares of 
common stock into a pro rata share of the aggregate amount then in 
the escrow account (net of taxes payable and amounts distributed to 
management for working capital purposes) if the business combination 
is approved and consummated. Id. If a shareholder vote on the 
business combination is not held, the company must provide all 
shareholders with the opportunity to redeem their shares for cash 
equal to their pro rata share of the aggregate amount then in the 
deposit account (net of taxes payable and amounts distributed to 
management for working capital purposes). See Nasdaq IM-5101-2(e).
    \11\ See Nasdaq IM-5101-2(d).
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    In its proposal, Nasdaq acknowledges that its existing rules 
require that, ``following each business combination'' with a SPAC, the 
resulting company must satisfy all initial listing requirements. Nasdaq 
asserts, however, that the rule does not provide a timetable for the 
company to demonstrate that it satisfies those requirements. 
Accordingly, Nasdaq proposes to modify the rule to specify if the SPAC 
demonstrates that it will satisfy all requirements except the 
applicable round lot shareholder requirement, then the SPAC will 
receive 15 calendar days following the closing to demonstrate that it 
satisfied the applicable round lot shareholder requirement immediately 
following the transaction's closing.\12\
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    \12\ Nasdaq has three listing tiers, each of which require, 
among other things, a company to have a minimum number of 
shareholders in order to initially list on the Exchange. See Nasdaq 
Rule 5315(f)(1) (on Global Select, an issuer must have at least 550 
Total Holders with a minimum average monthly trading volume over the 
prior 12 months, 2,200 Total Holders, or 450 Round Lot Holders with 
50% of holders holding Unrestricted Securities); Nasdaq Rule 
5405(a)(3) (on Global, an issuer must have at least 400 Round Lot 
Holders with 50% of holders holding Unrestricted Securities); and 
Nasdaq Rule 5505(a)(3) (on Capital, an issuer must have at least 300 
Round Lot Holders with at least 50% of holders holding Unrestricted 
Securities.

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[[Page 83114]]

    Nasdaq states that it ordinarily determines compliance with the 
round lot shareholder requirement at the time of a business combination 
by reviewing a company's public disclosures and information provided by 
the company about the transaction.\13\ According to Nasdaq, if it 
cannot determine compliance using public information, it will typically 
request the company to provide additional information such as 
registered shareholder lists from the company's transfer agent, data 
from Cede & Co. about shares held in street name, or data from broker-
dealers and third parties that distribute information such as proxy 
materials for the broker-dealers. If the company can provide 
information demonstrating compliance before the business combination 
closes, Nasdaq states that no further information would be required.
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    \13\ Nasdaq states, for example, that the merger agreement may 
result in the Acquisition Company issuing a round lot of shares to 
more than 300 holders of the target of the business combination at 
closing.
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    However, Nasdaq asserts that it has observed that in some cases it 
can be difficult for a company to obtain evidence demonstrating the 
number of shareholders that it has or will have following a business 
combination. Nasdaq notes that shareholders in a SPAC may redeem or 
tender their shares until just before the time of the business 
combination, and the SPAC may not know how many shareholders will 
choose to redeem until very close to the consummation of the business 
combination.\14\ Nasdaq states that this could impact its ability to 
determine compliance before the business combination closes, in cases 
where the number of round lot shareholders is close to the applicable 
requirement.
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    \14\ The Exchange notes that SPACs are unlike other newly 
listing companies which do not face redemptions and are not already 
listed and trading at the time they must demonstrate compliance.
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    Accordingly, for a SPAC that has demonstrated that it will satisfy 
all of the initial listing requirements except for the round lot 
shareholder requirement before consummating the business combination, 
Nasdaq proposes to allow the SPAC 15 calendar days after the closing of 
the business combination, if necessary, to demonstrate that it also 
complied with the round lot requirement at the time of the business 
combination. Nasdaq stresses that the SPAC must still demonstrate that 
it satisfied the round lot shareholder requirement immediately 
following the business combination, and that the proposal merely would 
give the SPAC 15 calendar days to provide evidence that it did. Nasdaq 
believes that the proposal ``balances the burden placed on the 
Acquisition Company to obtain accurate shareholder information for the 
new entity and the need to ensure that a company that does not satisfy 
the initial listing requirements following a business combination 
enters the delisting process promptly.'' \15\ Nasdaq notes that if the 
company does not evidence compliance within the proposed time period, 
Nasdaq staff would issue a delisting determination, which the company 
could then appeal to an independent hearings panel.\16\
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    \15\ The Exchange also takes the position that shareholders of 
the SPAC would be harmed if Nasdaq issued a delisting determination 
at a time when the company did, in fact, satisfy all initial listing 
requirements but could not yet provide proof.
    \16\ The Exchange has also proposed to eliminate a duplicative 
paragraph and add a new subsection enumeration to its existing rule.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2020-062 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \17\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved.
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    \17\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\18\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with the Act, and in 
particular, 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 a free and open market and a national market 
system, and, in general, to protect investors and the public interest; 
and are not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.'' \19\
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    \18\ Id.
    \19\ 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. 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.\20\
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    \20\ See, e.g., Securities Exchange Act Release Nos. 57785 (May 
6, 2008), 73 FR 27597 (May 13, 2008) (SR-NYSE-2008-17) (stating that 
the distribution standards, which includes exchange holder 
requirements ``. . . should help to ensure that the [SPAC's] 
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) (SR-Nasdaq-2008-013) (approving a 
proposal to adopt listing standards for SPACs); and 86117 (June 14, 
2018), 84 FR 28879 (June 20, 2018) (SR-NYSE-2018-46) (disapproving a 
proposal to reduce the minimum number of public holders continued 
listing requirement applicable to SPACs from 300 to 100).
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    As discussed above, the Exchange is proposing to provide a SPAC 15 
calendar days following the closing of a business combination to 
demonstrate that it satisfied the applicable round lot holder 
requirement immediately following the closing. The Exchange asserts 
that it can be difficult for a SPAC to obtain evidence demonstrating 
the number of holders it will have following the business combination 
because SPAC shareholders have the right to redeem or tender their 
shares until just before the time of such business combination. The 
Exchange, however, has provided no data or other evidence to support 
its position that SPACs have particular difficulties demonstrating 
compliance with the minimum number of holders requirements. For 
example, the Exchange has not provided any data showing the extent to 
which SPACs have been unable to meet the applicable minimum number of 
holders requirement immediately following the business combination, or 
the extent to which this was due to last minute redemptions by SPAC 
shareholders. The Exchange also has provided no data or other evidence 
showing how long it has taken SPACs that have been unable to meet the 
applicable minimum number of holders requirement, whether or not due to 
last minute shareholder redemptions, to come into compliance with such 
requirements.
    Further, the Exchange has not explained how providing a SPAC an 
additional 15 days following the closing of the business combination 
simply to demonstrate that it complied with the applicable minimum 
number of holders requirement immediately following the closing, would 
address the substantive compliance concerns associated with

[[Page 83115]]

last minute shareholder redemptions by SPACs that are close to the 
minimum requirement. The Exchange also has not addressed the risk that, 
by waiting for SPACs to demonstrate compliance with the minimum number 
of holders requirements until after the closing of the business 
combination, non-compliant companies could be listed on the Exchange 
despite not meeting initial listing standards, and have their 
securities continue to trade until the delisting process has been 
completed. As a result, a SPAC could complete a business combination 
and very soon thereafter be subject to delisting proceedings, and 
during such time its securities may trade with a number of holders that 
is substantially less than the required minimum. The Exchange has not 
addressed the impact this could have on SPAC shareholders and other 
market participants, or explained why subjecting them to these risks is 
consistent with the protection of investors and the public interest, 
and the other requirements of Section 6(b)(5) of the Act.
    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.'' 
\21\ 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 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.\22\
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    \21\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \22\ 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.

IV. Procedure: Request for Written 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 provision 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.\23\
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    \23\ 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 Cong., 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 January 11, 2021. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
January 25, 2021. The Commission asks that commenters address the 
sufficiency of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
    Comments may be submitted by any of the following methods:

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-NASDAQ-2020-062 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-NASDAQ-2020-062. 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-NASDAQ-2020-062 and should be submitted 
by January 11, 2021. Rebuttal comments should be submitted by January 
25, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-28066 Filed 12-18-20; 8:45 am]
BILLING CODE 8011-01-P