[Federal Register Volume 82, Number 49 (Wednesday, March 15, 2017)]
[Notices]
[Pages 13905-13908]
[FR Doc No: 2017-05137]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80199; File No. SR-NYSE-2016-72]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Approval of a Proposed Rule Change Amending Initial and
Continued Listing Standards for Special Purpose Acquisition Companies

March 10, 2017.

I. Introduction

    On December 8, 2016, the 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 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend initial listing
standards for Special Purpose Acquisition Companies (``SPACs'') to
provide an option to hold a tender offer in lieu of a shareholder vote
on a proposed acquisition; and amend initial and continued listing
standards to, among other things, lower quantitative standards. The
proposed rule change was published for comment in the Federal Register
on December 29, 2016.\3\ The Commission received no comments on the
proposal. On February 10, 2017, the Commission extended the time period
for Commission action on the proposal to March 29, 2017.\4\ This order
approves 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. 79676 (December 22,
2016), 81 FR 96150 (December 29, 2016) (``Notice'').
    \4\ See Securities Exchange Act Release No. 80022 (February 10,
2017), 82 FR 10947 (February 16, 2017) (``Extension'').
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II. Description of the Proposal

A. Background

    A SPAC is a special purpose company that raises capital in an
initial public offering (``IPO'') to enter into future undetermined
business combinations through mergers, capital stock exchanges, assets
acquisitions, stock purchases, reorganizations or similar business
combinations with one or more operating businesses or assets. In its
filing, the Exchange stated that in the IPO, a SPAC typically sells
units consisting of one share of common stock and one or more warrants
(or fraction of a warrant) to purchase common stocks. The units are
separable at some point after the IPO. The Exchange also noted that
management of the SPAC typically receives a percentage of the equity at
the outset and may be required to purchase additional shares in a
private placement at the time of the IPO. Due to their unique
structure, SPACs do not have any prior financial history, at the time
of their listing, like operating companies.
    NYSE Listed Company Manual (``Manual'') Section 102.06 sets forth
the listing standards that apply to SPACs.\5\ In addition to requiring
SPACs to meet certain quantitative standards, Section 102.06 of the
Manual provides additional investor protection safeguards for
shareholders investing in SPACs. Currently, Section 102.06 of the
Manual requires at least 90% of the proceeds raised in a SPAC IPO, and
any concurrent sale of equity securities, be placed in a trust
account.\6\ Further within three years, or such shorter time period as
specified by the SPAC, the SPAC must complete one or more business
combinations having an aggregate fair market value of at least 80% of
the value of the trust account.\7\ Until the SPAC has completed a
business combination, or a series of business combinations,
representing at least 80% of the trust account's aggregate fair market
value, the SPAC must, among other things, submit the business
combination to a shareholder vote.\8\ Any public shareholders who vote
against the business combination have a right to convert their shares
of common stock into a pro rata share of the aggregate amount then in
the trust account, if the business combination is approved and
consummated.\9\ The Manual further states that a business combination
cannot be consummated by the SPAC if the public shareholders owning in
excess of a threshold amount (to be set no higher than 40%) of the
shares of common stock exercise their conversion rights.\10\
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    \5\ The Commission notes that throughout this order we have used
the term ``SPAC'' or ``SPACs'', but these terms have the same
meaning as ``Acquisition Company'' or ``Acquisition Companies''
which are the terms used for listing, and continued listing, in
Sections 102.06 and 802.01B of the Manual. See NYSE Listed Company
Manual Sections 102.06 and 802.01B.
    \6\ See NYSE Listed Company Manual Section 102.06.
    \7\ Id. The 80% fair market value is the net assets held in
trust net of amounts disbursed to management for working capital
purposes and excluding the amount of any deferred underwriting
discount held in trust.
    \8\ Id.
    \9\ Id.
    \10\ Id.
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    In addition to these safeguards, a SPAC must also meet minimum
quantitative initial and continued listing standards to list, and
remain listed on the Exchange, as well as specified continued listing
standards to remain listed after consummation of a business
combination.\11\
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    \11\ See notes 16-18, infra and accompanying text.
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B. Option To Hold a Tender Offer in Lieu of a Shareholder Vote

    The Exchange proposes to add an option for the SPAC to conduct a
tender offer in lieu of a shareholder vote to complete a business
combination. First, under the proposal if a shareholder vote is not
held on a business combination for which the SPAC must file and furnish
a proxy or information statement subject to Regulation 14A or 14C under
the Exchange Act, the SPAC must provide all shareholders with the
opportunity to redeem all their shares for cash equal to their pro rata
share of the aggregate amount then in the deposit account pursuant to
Rule 13e-4 and Regulation 14E under the Exchange Act.\12\ The proposal
states that a SPAC

using the tender offer option to complete a business combination must
file tender offer documents with the Commission containing
substantially the same financial and other information about the
business combination and the redemption rights as would be required
under Regulation 14A of the Exchange Act.
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    \12\ See Notice, supra note 4.
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    Second, the proposal also specifies that shareholder vote
provisions requiring the business combination to be approved by a
majority of the shares voting at the meeting only apply to shareholder
votes where the SPAC must file and furnish a proxy or information
statement subject to Regulation 14A or 14C under the Exchange Act in
advance of the shareholder meeting.\13\ This provision would,
therefore, require a SPAC, not subject to the Commission's proxy rules,
such as a foreign private issuer, to utilize the tender offer option to
complete a business combination.
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    \13\ Id.
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    Finally, the Exchange is proposing to eliminate the provision that
prevents a business combination if public shareholders owning a
threshold amount (not to exceed 40%) of the shares of common stock
issued in the IPO exercise their conversion rights in connection with
the business combination.

C. Initial and Continued Listing Standards for SPACs Prior to and After
Consummation of a Business Combination

    The Exchange proposes to amend the quantitative requirements for
initial, and continued, SPAC listings. Currently, at the time of its
initial listing, a SPAC must demonstrate, among other things, an
aggregate market value of $250 million and a market value of publicly-
held shares of $200 million.\14\ The Exchange proposes to lower the
initial listing standards for a SPAC to an aggregate market value of
$100 million and market value of publicly-held shares of $80
million.\15\
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    \14\ A SPAC must also comply with the requirements of Section
102.01A of the Manual and have a closing price or, if listing in
connection with an IPO, an IPO price per share of at least $4.00 at
the time of initial listing. See NYSE Listed Company Manual Section
102.06.
    \15\ See Notice, supra note 4.
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    Currently, once listed but prior to the consummation of a business
combination, a SPAC is subject to suspension and delisting if it does
not maintain an average aggregate global market capitalization of at
least $125 million, or an average aggregate global market
capitalization attributable to its publicly-held shares of at least
$100 million, in each case over 30 consecutive trading days.\16\ The
Exchange proposes to lower these pre-business combination continued
listing standards to require a minimum of $50 million average aggregate
global market capitalization; and $40 million aggregate global market
capitalization attributable to publicly-held shares, in both cases over
30 consecutive trading days.
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    \16\ A SPAC also may be delisted if: (1) Its total stockholders
falls to less than 400; or (2) the total stockholders is less than
1,200 and average trading volume is less than 100,000 shares for the
most recent twelve months; or (3) the number of publicly-held shares
is less than 600,000. See NYSE Listed Company Manual Section
802.01B.
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    Currently, the Exchange will notify a SPAC if its average aggregate
global market capitalization falls below $150 million, or if its
average aggregate global market capitalization attributable to its
publicly-held shares falls below $125 million. In conjunction with the
proposed changes to the continued listing standards noted above, the
Exchange proposes to lower these notification standards to $75 million
average aggregate global market capitalization, and to $60 million
average aggregate global market capitalization attributable to its
publicly-held shares.\17\
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    \17\ The Exchange proposes that ``publicly-held shares'' would
exclude shares held by directors, officers, or their immediate
families and other concentrated holding of 10 percent or more. See
Notice, supra note 3. Further, for a post-business combination the
Exchange proposes the same publicly-held shares definition.
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    Currently, under the Manual, the post-business combination company
of a SPAC would be subject to the continued listing standards
applicable to operating companies that require $50 million average
global market capitalization along with stockholders' equity of at
least $50 million.\18\ The Exchange proposes to add additional
continued listing standards for the post-business combination company
of a SPAC in addition to changing the listing procedures the SPAC must
follow to provide for the listing of the post-business combination
company. In addition to continuing to require the post-business
combination company to meet all the continued listing requirements set
forth in Sections 801 and 802.01 of the Manual, including the market
capitalization and stockholders' equity requirements described
above,\19\ under the proposal, immediately after the business
combination, the company must also maintain: (1) A price per share of
at least $4.00; (2) a global market capitalization of at least $150
million; (3) an aggregate market value of publicly-held shares \20\ of
at least $40 million; and (4) the requirements with respect to
shareholders and publicly-held-shares set forth in Section 102.01A of
the Manual for companies listing in connection with an IPO.\21\
Furthermore, the Exchange proposes that in order to list the post-
business combination company the SPAC must submit an original listing
application, which must be approved by the Exchange prior to
consummation of the business combination.
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    \18\ See NYSE Listed Company Manual Section 802.01B. Under this
provision, to be below compliance, a listed company would have to be
below both the $50 million average global market capitalization and
$50 million shareholders' equity requirements consecutively for 30
trading days. This continued listing standard was formally referred
to as the ``Earnings Test.''
    \19\ Id.
    \20\ See note 19, supra.
    \21\ Currently, a company listing in connection with an IPO must
have a minimum of 400 holders of 100 or more shares and 1,100,000
publicly-held shares. See NYSE Listed Company Manual Section
102.01A.
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III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and
finds that it is consistent with the requirements of the Exchange Act
and the rules and regulations thereunder applicable to a national
securities exchange and, in particular, the requirements of Section
6(b) of the Exchange Act and the rules and regulations thereunder.\22\
Specifically, the Commission finds that the proposal is consistent with
Sections 6(b)(5) of the Exchange Act,\23\ in particular, in that it is
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 is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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    \22\ 15 U.S.C. 78f. In approving this proposed rule change, the
Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
    \23\ 15 U.S.C. 78f(b)(5).
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    The development and enforcement of adequate standards governing the
initial and continued listing of securities on an exchange is an
activity of critical importance to financial markets and the investing
public. Listing standards, among other things, serve as a means for an
exchange to screen issuers and to provide listed status only to bona
fide companies that have, or in the case of an IPO, will have
sufficient public float, investor base, and trading interest to provide
the depth and liquidity necessary to promote fair and orderly

markets. Adequate standards are especially important given the
expectations of investors regarding exchange trading and the imprimatur
of listing on a particular market. Once a security has been approved
for initial listing, maintenance criteria allow an exchange to monitor
the status and trading characteristics of that security to ensure that
it continues to meet the exchange's standards for market depth and
liquidity so that fair and orderly markets can be maintained.
    As noted above, SPACs are companies that raise capital in IPOs,
with the purpose of purchasing existing operating companies or assets
within a certain time frame. Because of the unique structure of SPACs,
investors do not know the ultimate business of the company before a
business combination, similar to a blank check company. Therefore, the
Commission approved the Exchange's listing standards for SPACs
containing certain provisions that were similar in some respects to the
investor protection measures contained in Rule 419 under the Securities
Act of 1933 (``Securities Act'').\24\ One of the important investor
protection safeguards incorporated into the Exchange's listing rules
for SPACs is the ability of public shareholders to convert their shares
for a pro rata share of the cash held in the trust account if they vote
against a business combination. In approving this provision, the
Commission noted that the conversion rights will help to ensure that
public shareholders who disagree with management's decision with
respect to a business combination have adequate remedies.\25\
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    \24\ See 17 CFR 230.419. Rule 419 of the Securities Act applies
to blank check companies issuing penny stock as defined under Rule
3a51-1(a)(2) of the Exchange Act. See 17 CFR 240.3a51-1(a)(2). See
also, Securities Exchange Act Release No. 57785 (May 6, 2008), 73 FR
27597 at 27599 (May 13, 2008) (``NYSE Order'').
    \25\ The Commission also noted, among other things, that the
Exchange would, immediately prior to consummation of a business
combination, consider whether the listing of the post-business
combination company would be in the best interest of the Exchange
and the public interest and would have authority to suspend and
delist the SPAC under this standard. This provision will continue to
apply to all business combinations, whether approved through a
shareholder vote or conducted through a tender offer, under the
proposed rule change. See NYSE Order, 73 FR at 27600. See also, NYSE
Listed Company Manual Section 802.01B. In addition, the Exchange
will also continue to consider whether the business combination
gives rise to a ``back-door listing'' as set forth in Section
703.08(e) of the Manual, irrespective of the method used to complete
the business combination. See NYSE Listed Company Manual Section
802.01B.
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    The proposal would provide an option for the SPAC to hold a tender
offer in lieu of a shareholder vote on a proposed business combination.
The Exchange noted that certain hedge funds and other activist
investors have sometimes employed a strategy of acquiring an interest
in a SPAC and then using their ability to vote against a proposed
business combination to obtain additional consideration not available
to other shareholders in a practice known as ``greenmail.'' \26\
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    \26\ See Notice, note 4, supra.
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    The Commission notes that shareholders will receive redemption
rights and comparable financial and other information about the
business combination irrespective of whether the SPAC's business
combination is consummated through a tender offer or a shareholder
vote. The Commission believes that shareholders who are not in favor of
a business combination should continue to have an adequate remedy under
the Exchange's proposal if they disagree with management's decision
with respect to a business combination, and that the Exchange's SPAC
rules will continue to have safeguards to address investor protection,
while at the same time allowing the greenmail abuses noted by the
Exchange to be addressed. Based on the above, the Commission finds that
this proposal is consistent with the requirements of the Act and in
particular the investor protection standards under Section 6(b)(5) of
the Exchange Act.
    The Exchange is also proposing to add language to Section 102.06 of
the Manual which concerns the shareholder voting requirements
applicable to business combinations of SPACs. Under this change if a
SPAC holds a shareholder vote to approve a business combination, the
provisions only apply when the SPAC must file and furnish a proxy or
information statement subject to Regulation 14A or 14C under the
Exchange Act in advance of the shareholder meeting. This change, viewed
together with the changes discussed above, allowing a SPAC to
consummate a business combination through a tender offer rather than a
shareholder vote, mean that certain SPACs that are not required under
the Federal securities laws to comply with the Commission's proxy
solicitation rules when soliciting proxies, will have to follow the
tender offer provisions under the Exchange's rules.\27\ Under this
provision, the tender offer documents are specifically required to
contain substantially the same financial and other information about
the business combination and redemption rights, as would be required
under the proxy rules in Regulation 14A of the Exchange Act. The
Commission notes that this proposal would clarify the manner in which a
shareholder vote is held and the information that would be required by
the SPAC to send to shareholders. Further, it ensures that all
investors will be receiving the same information about a proposed
business combination whether it is holding a vote and required by law
to follow the proxy rules or conducting a tender offer under the
conditions set forth in the Exchange's rules. This provision also does
not preclude a SPAC that does not have to comply with the Federal proxy
rules when soliciting proxies from having a shareholder vote, but
merely ensures, through the tender offer process, that the SPAC will be
required to provide comparable information. Based on the above, the
Commission finds that this portion of the proposal is consistent with
the requirements of the Exchange Act, and in particular, the investor
protections requirements under Section 6(b)(5) of the Act.\28\
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    \27\ For example, registered securities of foreign private
issuers are exempt from the proxy rules. See Section 3(a)12-3 of the
Exchange Act.
    \28\ The Commission notes that it has previously approved a
substantially similar rule concerning this portion of the Exchange's
proposal for other national securities exchanges. See Securities
Exchange Act Release No. 63366 (November 23, 2010), 75 FR 74119
(November 30, 2010) (NYSEAmex-2010-103) and Securities Exchange Act
Release No. 63607 (December 23, 2010), 75 FR 82420 (December 30,
2010) (Nasdaq-2010-137).
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    Further, the Exchange has also proposed to eliminate the provision
that a business combination cannot be consummated by the SPAC if the
public shareholders owning in excess of a threshold amount (to be set
no higher than 40%) of the shares of common stock exercise their
conversion rights. The Commission notes that we have approved SPAC
listing rules on other markets that do not contain a similar
requirement. If a SPAC wants to adopt such a provision, however, it
will still be permitted to do so. Based on the above, it is reasonable
to allow the Exchange to not mandate such a requirement. The
Commission, therefore, finds this change is consistent with the
requirements of Section 6(b)(5) of the Exchange Act.\29\
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    \29\ Id.
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    The proposal would also lower the initial listing standards
applicable to SPACs from an aggregate market value of least $250
million to $100 million and market value of publicly-held shares of at
least $200 million to $80 million. Under the proposal, a SPAC would be
promptly suspended from trading and delisted if, over any 30 day
consecutive trading period, its average aggregate global capitalization
falls below $50 million or its average

aggregate global market capitalization of publicly-held shares falls
below $40 million.\30\ As noted above, current rules set these dollar
limits at $125 million and $100 million, respectively. The proposal
would further lower the threshold for Exchange notification of the SPAC
if aggregate global market capitalization falls below $75 million, as
opposed to $150 million under the current rule, and aggregate global
market capitalization attributable to publicly-held shares falls below
$60 million, as opposed to $125 million under the current rule. The
Commission notes that, despite the fact that the proposed reduction to
SPAC listing and continued listing standards are significant on a
percentage basis, the proposed requirements remain higher than
comparable listing standards on other markets that list and trade SPACs
and should be sufficient to promote fair and orderly markets.\31\
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    \30\ The Commission notes that the current distribution
standards and other continued listing standards applicable to pre-
business combination SPAC will remain unchanged. See NYSE Listed
Company Manual Section 801 and 802.
    \31\ For example, initial listing standards on Nasdaq's Global
Market and NYSE MKT require, among other things, a market value of
listed securities of $75 million and a market value of publicly-held
shares of at least $20 million. See Nasdaq Rule 5405 and Section
101(d) of NYSE MKT Company Guide. The continued listing standards
for Nasdaq Global Market and NYSE MKT require, among other things,
at least $50 million in market value and $15 million market value in
publicly-held shares. See Nasdaq Rule 5450 and Section 1003(a) of
NYSE MKT Company Guide. The Exchange's other quantitative standards
for SPACs to list, and continue to be listed, such as, for example,
the holder requirements, will also continue to be comparable to
Nasdaq Global Market standards with the changes being approved in
this order.
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    Lastly, the Exchange proposes to add additional continued listing
standards after the consummation of a business combination in
connection with the lowering of the initial listing standards for a
SPAC. These new standards, as noted above, will be in addition to the
existing continued listing standards that currently apply to the post-
business combination company.\32\ The Commission notes that the
additional requirements should strengthen the continued listing
standards applicable to the post-business combination company by
requiring, in order to remain listed on the Exchange, such company to
meet at least a price per share of $4 and the initial listing
distribution standards set forth in Section 102.01A of the Manual \33\
as well as have sufficient market capitalization and market value of
publicly-held shares to ensure adequate depth and liquidity.\34\ The
proposed standards would also require a SPAC that is planning to
consummate a business combination to submit an original listing
application that must be approved by the Exchange prior to the listing
of the post-business combination company. The Commission believes the
additional requirement for the SPAC to submit, and receive Exchange
approval of its, listing application to continue to list on the
Exchange as a post-business combination company should allow the
Exchange to reevaluate whether the newly formed operating company is
suitable for continued listing and will have sufficient market depth
and liquidity for continued trading.\35\ The new requirements also make
the continued listing process for a post-business combination company
more similar to the process for any new listing applicant, which is
consistent with the unique characteristics of a SPAC that lists with
the intention to find a business combination with an operating company.
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    \32\ See note 20, supra and accompanying text.
    \33\ The distribution standards of Section 102.01A of the Manual
set forth minimum standards for the number of round lot shareholders
and number of publicly-held shares required for initial listing. See
NYSE Listed Company Manual Section 102.01A.
    \34\ The Exchange proposes to require at a minimum $150 million
of global market capitalization and $40 million of aggregate market
value of publicly-held shares. See proposed NYSE Listed Company
Manual Section 802.01B.
    \35\ The continued application of the back-door listing
provisions should also help ensure that a company not otherwise
qualified for original listing could get listed on the Exchange
through a business combination with a SPAC. See NYSE Listed Company
Manual Section 802.01B of the Manual. See also note 27, supra and
accompanying text.
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    Based on the foregoing, the Commission finds that the proposed
changes to listing standards are consistent with the requirements of
the Exchange Act.

IV. Conclusion

    It is therefore ordered that pursuant to Section 19(b)(2) of the
Exchange Act \36\ that the proposed rule change (SR-NYSE-2016-72) be,
and hereby is, approved.
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    \36\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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    \37\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-05137 Filed 3-14-17; 8:45 am]
 BILLING CODE 8011-01-P