Notice2021-14799
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Modify Listing Rule IM-5101-2 To Permit an Acquisition Company To Contribute a Portion of Its Deposit Account to Another Entity in a Spin-Off or Similar Corporate Transaction
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 13, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 131 (Tuesday, July 13, 2021)</title>
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[Federal Register Volume 86, Number 131 (Tuesday, July 13, 2021)]
[Notices]
[Pages 36841-36843]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-14799]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92344; File No. SR-NASDAQ-2021-054]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Modify Listing Rule IM-
5101-2 To Permit an Acquisition Company To Contribute a Portion of Its
Deposit Account to Another Entity in a Spin-Off or Similar Corporate
Transaction
July 7, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 24, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to modify Listing Rule IM-5101-2 to permit a
SPAC to contribute a portion of the amount held in its deposit account
to a deposit account of a new SPAC and spin off the new SPAC to its
shareholders.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules</a>, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq proposes to modify IM-5101-2 to allow an acquisition company
listed under that rule to contribute a portion of the amount held in
its deposit account to a deposit account of a new acquisition company
and spin off the new acquisition company to its shareholders in certain
situations where the new acquisition company will be subject to all of
the same requirements as the original acquisition company.
Generally, Nasdaq will not permit the initial or continued listing
of a company that has no specific business plan or that has indicated
that its business plan is to engage in a merger or acquisition with an
unidentified company or companies. In 2008, Nasdaq adopted a rule to
allow such companies to list if they meet all applicable initial
listing requirements, as well as additional conditions designed to
provide investor protections to address specific concerns about the
structure of such companies (``acquisition companies'' or
``SPACs'').\3\ These additional conditions generally require, among
other things, that at least 90% of the gross proceeds from the initial
public offering must be deposited in a ``deposit account,'' as that
term is defined in the rule, and that the SPAC complete within 36
months, or a shorter period identified by the SPAC, one or more
business combinations having an aggregate fair market value of at least
80% of the value of the deposit account at the time of the agreement to
enter into the initial combination.
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\3\ IM-5101-2. See Securities Exchange Act Release No. 58228
(July 25, 2008), 73 FR 44794 (July 31, 2008) (adopting the
predecessor to IM-5101-2).
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When a SPAC conducts its initial public offering, it raises the
amount of capital that it estimates will be necessary to finance a
subsequent business combination with its ultimate target. However,
because a SPAC cannot identify or select a specific business
combination target at the time of its IPO, it often turns out that the
amount raised is not optimal for the needs of a specific target. This
has resulted in the inefficient, current practice of SPAC sponsors
creating multiple SPACs of different sizes at the same time, with the
intention to use the SPAC that is closest in size to the amount a
particular target needs. This practice creates the potential for
conflicts between the multiple SPACs (each of which has different
shareholders) and still fails to optimize the amount of capital that
would benefit the SPAC's public shareholders and a business combination
target. Moreover, this creates the need for repetitive action
throughout the ecosystem, including the filing and SEC review of
multiple registration statements and periodic reports, formation of
multiple boards of directors, multiple audits and multiple company
listings. This practice also can lead to confusion amongst investors.
Accordingly, Nasdaq proposes to modify IM-5101-2 to permit a more
efficient structure whereby an acquisition company can raise in its
initial public offering the maximum amount of capital it anticipates it
may need for a business combination transaction and then ``rightsize''
itself by contributing any amounts not needed to a new SPAC (the
``SpinCo SPAC''), and spinning off this SpinCo SPAC to its
shareholders. The SpinCo SPAC will be subject to all the provisions of
IM-5101-2 in the same manner, and subject to the same timeframes, as
the original SPAC.
It is expected that the new structure will be implemented in the
following manner. If the listed SPAC (the ``Original SPAC'') determines
that it will not need all of the cash in its deposit account for its
initial business combination, it will designate the excess cash for a
new deposit account held by a new SPAC, the SpinCo SPAC (such
[[Page 36842]]
amount, the ``SpinCo Deposit Account,'' and the amount retained in the
deposit account of the Original SPAC, the ``Retained SPAC Deposit
Account''), which will be spun off to the Original SPAC's shareholders
as described below. Until the spin-off described below, the amount
designated for the SpinCo Deposit Account must continue to be held for
the benefit of the shareholders of the Original SPAC. Following the
spin-off, the SpinCo Deposit Account will be subject to the same
requirements as the deposit account of the Original SPAC.
The SpinCo SPAC will file a registration statement under the
Securities Act of 1933 for purposes of effecting the spin-off of the
SpinCo SPAC. Prior to the effectiveness of the registration statement,
the Original SPAC will provide its public shareholders through one or
more corporate transactions with the opportunity to redeem a pro rata
amount of their holdings equal to the amount of the SpinCo Deposit
Account divided by the per share amount in the Original SPAC's deposit
account (the ``redemption price'').\4\
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\4\ This redemption could occur, for example, through a partial
cash tender offer for shares of the Original SPAC pursuant to Rule
13e-4 and Regulation 14E of the Securities Exchange Act of 1934, and
the redemption may be of a separate class of shares distributed to
unitholders of the Original SPAC for the purpose of facilitating the
redemption.
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After completing the tender offer and effectiveness of the SpinCo
SPAC's registration statement, the Original SPAC will contribute the
SpinCo Deposit Account to a deposit account held by the SpinCo SPAC in
exchange for shares or units of the SpinCo SPAC, which the Original
SPAC will then distribute to its public shareholders on a pro rata
basis through one or more corporate transactions pursuant to the SpinCo
SPAC's effective registration statement.
The Original SPAC will then continue to operate as a SPAC until it
completes its business combination and will offer redemption rights to
its public shareholders in connection with that business combination in
the same manner as a traditional SPAC. The SpinCo SPAC will operate in
the same manner as a traditional SPAC, except that it could effect a
spin-off prior to its business combination like the Original SPAC. If
it does not elect to effect a spin-off, the SpinCo SPAC will proceed to
complete an initial business combination and offer redemption rights in
connection therewith like a traditional SPAC.
Nasdaq proposes adopting a new subsection at IM-5101-2(f) which
will specifically permit this type of transaction by allowing the
Original SPAC to contribute a portion of the amount held in the deposit
account to the deposit account of SpinCo SPAC in a spin-off or similar
corporate transaction where all of the conditions described below are
satisfied:
(i) The public shareholders of the Original SPAC receive a pro rata
interest in the SpinCo SPAC, except to the extent that they have
elected to redeem a portion of their shares of the Original SPAC in
lieu of being entitled to receive shares or units in the SpinCo SPAC;
(ii) public shareholders must have the right to convert or redeem
their shares of common stock into a 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) before the
first business combination, with part of such conversion or redemption
able to be fulfilled through a redemption (including by means of a
tender offer) in lieu of being entitled to receive shares or units in
the spin-off of a SpinCo SPAC;
(iii) the amount distributed to the SpinCo SPAC must remain in the
SpinCo Deposit Account for the benefit of the shareholders of the
SpinCo SPAC in the same manner applicable to the Original SPAC as
described in IM-5101-2(a);
(iv) the SpinCo SPAC must meet all applicable initial listing
requirements, as well as the conditions described in IM-5101-2(a)
through (e);
(v) in the case of the SpinCo SPAC, and any additional entities
spun off from the SpinCo SPAC, each of which will also be considered a
SpinCo SPAC, the 36-month period described in IM-5101-2(b) (or such
shorter period that the original SPAC specifies in its registration
statement) will be calculated based on the date of effectiveness of the
Original SPAC's IPO registration statement; and
(vi) in the aggregate, through one or more opportunities by the
Original SPAC and one or more SpinCo SPACs, public shareholders will
have the ability to convert or redeem shares, or receive amounts upon
liquidation, for the full amount of the deposit account established by
the Original SPAC as described in IM-5101-2(a) (excluding any deferred
underwriters fees and taxes payable on the income earned on the deposit
account).
Proposed IM-5101-2(f) would further provide that, for purposes of
IM-5101-2(b), the Original SPAC must complete one or more business
combinations with an aggregate fair market value of at least 80% of the
aggregate amount remaining in the Retained SPAC Deposit Account at the
time of its agreement to enter into its initial combination. Similarly,
a SpinCo SPAC must complete one or more business combinations with an
aggregate fair market value of at least 80% of the aggregate amount
remaining in the SpinCo Deposit Account at the time of its agreement to
enter into its initial combination after giving effect to its
contribution to a subsequent SpinCo SPAC, if any.
In addition, proposed IM-5101-2(f) would provide that, for purposes
of IM-5101-2(d) and (e), the right to convert and opportunity to redeem
shares of common stock on a pro rata basis, respectively, will, in the
case of the Original SPAC, be deemed to apply to the aggregate amount
remaining in the Retained SPAC Deposit Account, and, in the case of the
SpinCo SPAC, be deemed to apply to the aggregate amount in the SpinCo
Deposit Account. Under IM-5101-2(c), a majority of the Original SPAC's
independent directors must approve its business combination and a
majority of the independent directors of the SpinCo SPAC must approve
the SpinCo SPAC's business combination.
In this manner, the structure allows public shareholders an
additional, early redemption opportunity with respect to a portion of
their holdings, before the time they would be able to do so in a
traditional SPAC, and public shareholders would maintain the ability to
redeem the portion of their investment attributable to each specific
acquisition after reviewing all disclosure with respect to that
acquisition. All other protections contained under IM-5101-2 would
continue to apply, with adjustments only to reflect the potential for a
spin-off of a new SPAC that is subject to all of the requirements of
IM-5101-2. Moreover, the proposed structure would also provide
shareholders the opportunity to invest with a sponsor without spreading
that investment across the sponsor's multiple SPACs.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\5\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\6\ in particular, in that it is designed 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,
by
[[Page 36843]]
establishing the means through which a SPAC can complete more than one
business combination resulting in separate operating companies.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
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The Commission has previously concluded that listing an acquisition
company that satisfies the requirements of Nasdaq IM-5101-2 is
consistent with the investor protection goals of the Exchange Act.\7\
The proposed rule change will extend these important investor
protections to a new structure that addresses inefficiencies and
potential conflicts of interest in the SPAC market. Specifically, as
proposed, a SpinCo SPAC will be required to satisfy all applicable
initial listing requirements, like any other SPAC listing on Nasdaq. In
addition, the provisions of IM-5101-2(a) will apply to the SpinCo SPAC
in the same manner as they apply to any other SPAC, except the deposit
account will be contributed to the SpinCo SPAC by the Original SPAC.
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\7\ Securities Exchange Act Release No. 58228, supra note 3.
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The provisions of IM-5101-2(b) and IM-5101-2(d) or (e), as
applicable, will also apply to each of the Original SPAC and the SpinCo
SPAC in the proposed structure in the same manner as they apply to any
other SPAC, except that the 80% test will be applied to the amount
retained by the Original SPAC after public shareholders have had an
initial, early redemption opportunity and the Original SPAC has
contributed a portion of its deposit account to the SpinCo SPAC. The
Exchange believes that this proposed difference does not adversely
affect shareholders because the shareholders will still have the
opportunity to redeem for the entire pro rata share of the trust
account prior to completion of the business combination. The primary
difference is that the redemption right may be effected through two
decisions, one of which is accelerated to allow an earlier redemption
than would be available to the public shareholders of a traditional
SPAC and the other will come at the time of the business combination,
just as in a traditional SPAC.
As with the existing rules, each business combination must be
approved by the SPAC's independent directors, as required by IM-5101-
2(c), and following each business combination, the combined company
must satisfy all initial listing requirements, as required by IM-5101-
2(d) or (e), respectively.
Accordingly, in this manner, the Exchange believes that the
proposed rule change satisfies the requirements of Section 6(b)(5) of
the Act in that it is designed 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule would be
available in a non-discriminatory way to any company satisfying its
requirements, as well as all other applicable Nasdaq listing
requirements. In addition, Nasdaq faces competition for listings but
the proposed rule change does not impose any burden on the competition
with other exchanges; any competing exchange could similarly adopt
rules to allow listing SPACs using such a structure.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#6210170e074f010d0f0f070c1611221107014c050d14"><span class="__cf_email__" data-cfemail="93e1e6fff6bef0fcfefef6fde7e0d3e0f6f0bdf4fce5">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2021-054 on the subject line.
Paper Comments
<bullet> 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-2021-054. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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-2021-054, and should be submitted
on or before August 3, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-14799 Filed 7-12-21; 8:45 am]
BILLING CODE 8011-01-P
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