Notice2024-15411
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
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Published
July 15, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 135 (Monday, July 15, 2024)</title>
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[Federal Register Volume 89, Number 135 (Monday, July 15, 2024)]
[Notices]
[Pages 57436-57438]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#7f0d0a131a521c1012121a110b0c3f0c1a1c51181009"><span class="__cf_email__" data-cfemail="582a2d343d753b3735353d362c2b182b3d3b763f372e">[email protected]</span></a>. Please include
File Number SR-NYSE-2024-18 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-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 (<a href="https://www.sec.gov/rules/sro.shtml">https://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
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
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