[Federal Register Volume 89, Number 135 (Monday, July 15, 2024)]
[Notices]
[Pages 57436-57438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15411]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100480; File No. SR-NYSE-2024-18]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Amend Section 102.06 of the NYSE Listed Company 
Manual To Provide That a Special Purpose Acquisition Company Can Remain 
Listed Until Forty-Two Months From Its Original Listing Date if It Has 
Entered Into a Definitive Agreement With Respect to a Business 
Combination Within Three Years of Listing

July 9, 2024.

    On March 27, 2024, New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \2\ and Rule 19b-4 
thereunder,\3\ a proposal to amend Section 102.06 of the NYSE Listed 
Company Manual (``Manual'') to provide that a special purpose 
acquisition company (``SPAC'') can remain listed until forty-two months 
from its original listing date if it has entered into a definitive 
agreement with respect to a business combination within three years of 
listing. The proposed rule change was published for comment in the 
Federal Register on April 10, 2024.\4\ On May 22, 2024, pursuant to 
Section 19(b)(2) of the Exchange Act,\5\ the Commission designated a 
longer period within which to either approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to disapprove the proposed rule change.\6\ The 
Commission has not received any comments on the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 99906 (Apr. 4, 
2024), 89 FR 25291 (``Notice'').
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 100220 (May 22, 
2024), 89 FR 46527 (May 29, 2024). The Commission designated July 9, 
2024, as the date by which it should approve, disapprove, or 
institute proceedings to determine whether to disapprove the 
proposed rule change.
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    This order institutes proceedings under Section 19(b)(2)(B) of the 
Exchange Act \7\ to determine whether to approve or disapprove the 
proposed rule change.
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    \7\ 15 U.S.C. 78s(b)(2)(B).
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I. Description of Proposed Rule Change

    SPACs are special purpose acquisition companies whose business plan 
is to raise capital in an initial public offering (``IPO'') and within 
a specified period of time, engage in a merger or acquisition with one 
or more unidentified operating companies.\8\ Section 102.06 of the 
Manual sets forth the listing requirements applicable to SPACs. Section 
102.06 requires, among other things, that a SPAC must keep 90% of the 
gross proceeds of its IPO in a trust account until the completion of a 
Business Combination \9\ meeting the rule's requirements. The SPAC also 
must complete one or more Business Combinations, having an aggregate 
fair market value of at least 80% of the value of the trust account, 
within a period of time not to exceed 3 years of the listing of the 
SPAC.\10\ Section 102.06e of the Manual provides that the Exchange will 
promptly commence delisting procedures with respect to any listed SPAC 
that fails to consummate its Business Combination within (i) the time 
period specified by its constitutive documents or by contract or (ii) 
three years, whichever is shorter.
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    \8\ See, e.g., Securities Act Release No. 11265 (Jan. 24, 2024), 
89 FR 14158, 14160 (Feb. 26, 2024).
    \9\ For purposes of Section 102.06, a ``Business Combination'' 
is defined as a merger, capital stock exchange, asset acquisition, 
stock purchase, reorganization, or similar business combination with 
one or more operating businesses or assets.
    \10\ See Section 102.06 of the Manual.
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    The Exchange proposes to amend Section 102.06e to extend the period 
for which a SPAC can remain listed if it has signed a definitive 
agreement with respect to a Business Combination. As proposed, Section 
102.06e would provide that a SPAC will be liquidated, and the Exchange 
will promptly commence delisting procedures, if the SPAC has not: (i) 
entered into a definitive agreement with respect to its Business 
Combination within (A) the time period specified by its constitutive 
documents or by contract or (B) three years, whichever is shorter; or 
(ii) consummated its Business Combination within the time period 
specified by its constitutive documents or by contract or forty-two 
months, whichever is shorter.\11\
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    \11\ See Notice, 89 FR at 25292.
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    In support of the proposed rule change, the Exchange states that it 
believes that a SPAC represents a significantly different investment 
after it enters into a definitive agreement for a Business Combination, 
as investors who continue to hold the SPAC's securities or acquire them 
after that agreement is executed have knowledge about the operating 
asset the SPAC intends to own and can be assumed to own the securities 
because they want to have an ownership interest in the post-Business 
Combination entity.\12\ As such, the Exchange believes that a SPAC that 
has signed a definitive merger agreement to acquire an identified 
business does not present the same investor protection concerns as a 
SPAC before signing such an agreement, which it describes as more 
purely a blind pool investment.\13\ In addition, the Exchange states 
that delisting a SPAC that has signed a definitive merger agreement 
when it reaches the three-year deadline may be contrary to the 
interests of the SPAC's public shareholders at that time.\14\
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    \12\ Id.
    \13\ Id.
    \14\ Id. The Exchange also states that Nasdaq's SPAC listing 
requirements include a three-year limitation that is substantially 
similar to that included in the Exchange's existing SPAC listing 
standard. See Nasdaq IM 5101-2. However, the Exchange states that 
Nasdaq appeal panels have granted additional time to SPACs that 
appeal their delisting for failure to consummate a Business 
Combination within three years in circumstances where the SPAC has 
entered into a definitive agreement within such three-year period. 
See Notice, 89 FR at 25291-92. See also, infra note 20, concerning a 
recently submitted Nasdaq proposed rule change on SPACs.

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[[Page 57437]]

II. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2024-18 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act \15\ 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. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change to inform the Commission's analysis of 
whether to approve or disapprove the proposal.
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    \15\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\16\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis of, and input from commenters with respect to, the 
consistency of the proposal with Section 6(b)(5) \17\ of the Act. 
Section 6(b)(5) of the Act requires that the rules of a national 
securities exchange be designed, among other things, 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 not 
be designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.\18\
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    \16\ Id.
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ Id.
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    The Commission has consistently recognized the importance of 
national securities exchange listing standards. Among other things, 
such listing standards help ensure that exchange-listed companies will 
have sufficient public float, investor base, and trading interest to 
provide the depth and liquidity necessary to promote fair and orderly 
markets.\19\
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    \19\ For example, the Commission has repeatedly stated in 
approving exchange listing requirements 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. See, e.g., Securities 
Exchange Act Release Nos. 81856 (Oct. 11, 2017), 82 FR 48296, 48298 
(Oct. 17, 2017) (NYSE-2017-31); 57785 (May 6, 2008), 73 FR 27597 
(May 13, 2008) (SR-NYSE-2008-17); 58228 (July 25, 2008), 73 FR 
44794, 44796 (July 31, 2008) (SR-NASDAQ-2008-013). In addition, the 
Commission has stated that adequate listing standards, by promoting 
fair and orderly markets, are consistent with Section 6(b)(5) of the 
Exchange Act, in that they are, among other things, designed to 
prevent fraudulent and manipulative acts and practices, promote just 
and equitable principles of trade, and protect investors and the 
public interest. See, e.g., Securities Exchange Act Release Nos. 
90768 (Dec. 22, 2020), 85 FR 85807, 85811 n.55 (Dec. 29, 2020) (SR-
NYSE-2019-67); 82627 (Feb. 2, 2018), 83 FR 5650, 5653 n.53 (Feb. 8, 
2018) (SR-NYSE-2017-30); 87648 (Dec. 3, 2019), 84 FR 67308, 67314 
n.42 (Dec. 9, 2019) (SR-NASDAQ-2019-059); 88716 (Apr. 21, 2020), 85 
FR 23393, 23395 n.22 (Apr. 27, 2020) (SR-NASDAQ-2020-001).
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    The Exchange has proposed a fundamental change to the well-
established requirement that a SPAC's Business Combination must be 
consummated within three years or face delisting, and is seeking to 
extend this time requirement to allow up to 42 months for a SPAC to 
complete its Business Combination if the SPAC has entered into a 
``definitive agreement'' to consummate its Business Combination.\20\ In 
support of the proposed change, the Exchange states that once a 
definitive agreement is entered into, a SPAC ``represents a 
significantly different investment'' because more information will be 
available to investors about the operating asset the SPAC intends to 
own.\21\
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    \20\ See Notice, 89 FR at 25292. On July 8, 2024, Nasdaq filed a 
proposed rule change that would, among other things, eliminate the 
discretion of Nasdaq appeals panels to grant such additional time to 
a SPAC. (SR-Nasdaq-2024-038).
    \21\ See Notice, 89 FR at 25292.
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    The three-year limit, however, was put in place to provide 
protection for public shareholders by restricting the time period a 
SPAC could retain shareholder funds without consummating a Business 
Combination.\22\ The Exchange does not address how the proposal would 
affect shareholder protection or why it is appropriate for a SPAC to 
retain shareholder funds past the current maximum time period of three 
years \23\ and how that would be consistent with the investor 
protection and public interest requirements of Section 6(b)(5) of the 
Act.\24\
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    \22\ See Securities Exchange Act Release No. 57785 (May 6, 
2008), 73 FR 27597 (May 13, 2008). At the time the NYSE listing 
standards for SPACs were initially approved, the Commission stated 
that those standards provided additional protections and safeguards 
to address investor protection including, among others, the 
requirement that a SPAC consummate a Business Combination within a 
specified period of time not to exceed three years or else investors 
would be entitled to liquidation rights, and the security would be 
delisted. Id. at 27600.
    \23\ SPAC sponsors have incentives to complete a business 
consummation or ``de-SPAC.'' The SPAC sponsor receives compensation 
in the form of discounted SPAC shares that generally only have value 
if a business consummation occurs. See Special Purpose Acquisition 
Companies, Shell Companies, and Projections, Securities Act Release 
No. 11265 (Jan. 24, 2024), 89 FR 14158, 14160 (Feb. 26, 2024) 
(``SPAC Adopting Release''). Thus, ``[t]he SPAC sponsor's 
compensation structure creates incentives to complete a de-SPAC 
transaction. These incentives may induce a SPAC sponsor and others 
to compel the SPAC to complete the de-SPAC transaction on 
unfavorable terms to avoid liquidation of the SPAC at the expiry of 
this period.'' Id. at 14176.
    \24\ 15 U.S.C. 78f(b)(5).
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    Accordingly, the Commission believes there are questions as to 
whether the proposal is consistent with Section 6(b)(5) of the Act and 
its requirements, among other things, that the rules of a national 
securities exchange be designed to protect investors and the public 
interest and whether the Exchange has provided an adequate basis for 
the Commission to conclude that the proposal would be consistent with 
Section 6(b)(5) of the Act.
    In addition, the proposal raises concerns under the Investment 
Company Act of 1940. The Commission recently noted that a SPAC whose 
assets and income are substantially composed of, and derived from, 
securities raises concerns that it may be an investment company when it 
operates beyond certain timelines, including the one-year and eighteen-
month timelines established under Rule 3a-2 of the Investment Company 
Act of 1940 and Rule 419 of the Securities Act of 1933, 
respectively.\25\ The Commission also noted that these concerns 
increase as the departure from these timelines lengthens.\26\ If such a 
SPAC meets the definition of an investment company, it would have to 
register as an investment company and this would raise issues of its 
continued listing as a SPAC.
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    \25\ See generally, SPAC Adopting Release, 89 FR at 14260 
(describing a SPAC's duration as one relevant consideration in 
evaluating whether a SPAC is an investment company); Section 3(a)(1) 
of the Investment Company Act of 1940 (defining an investment 
company).
    \26\ Id.
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    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.'' 
\27\ The description of a proposed rule change, its purpose and 
operation, its effect, and a legal analysis of its consistency with 
applicable

[[Page 57438]]

requirements must all be sufficiently detailed and specific to support 
an affirmative Commission finding,\28\ and any failure of an SRO to 
provide this information may result in the Commission not having 
sufficient basis to make an affirmative finding that a proposed rule 
change is consistent with the Exchange Act and the applicable rule and 
regulations.\29\
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    \27\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \28\ See id.
    \29\ 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 Exchange 
Act \30\ to determine whether the proposal should be approved or 
disapproved.
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    \30\ 15 U.S.C. 78s(b)(2)(B).
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III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their data, views, 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 proposed rule change 
is consistent with the Act, and 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 data, 
views, and arguments, the Commission will consider, pursuant to Rule 
19b-4 under the Act,\31\ any request for an opportunity to make an oral 
presentation.\32\
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    \31\ 17 CFR 240.19b-4.
    \32\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to 
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 Acts 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 proposed rule change should be approved 
or disapproved by August 5, 2024. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
August 19, 2024. 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,\33\ in addition to any other 
comments they may wish to submit about the proposed rule change.
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    \33\ See Notice, supra note 3.
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    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSE-2024-18 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-2024-18. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NYSE-2024-18 and should be 
submitted by August 5, 2024. Rebuttal comments should be submitted by 
August 19, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15411 Filed 7-12-24; 8:45 am]
BILLING CODE 8011-01-P