
[Federal Register Volume 82, Number 131 (Tuesday, July 11, 2017)]
[Notices]
[Pages 32022-32024]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14430]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81079; File No. SR-NYSE-2017-11]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Amendment No. 2 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 2, to 
Amend Listing Standards for Special Purpose Acquisition Companies to 
Modify the Initial and Continued Distribution Requirements

July 5, 2017.

I. Introduction

    On March 20, 2017, 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 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend listing standards for Special Purpose 
Acquisition Companies (``SPACs'') to modify the initial and continued 
distribution requirements, and to make other minor changes. The 
proposed rule change was published for comment in the Federal Register 
on April 6, 2017.\3\ The Commission received no comments on the 
proposal. On May 19, 2017, the Commission designated a longer period 
for Commission action until July 5, 2017.\4\ On May 23, 2017, NYSE 
filed Amendment No. 1 to the proposal. On June 19, 2017, NYSE withdrew 
Amendment No. 1 and filed Amendment No. 2 to, among other things, 
revise the proposed continued listing distribution standard from a 
requirement of 300 total stockholders to a requirement of 300 public 
stockholders.\5\ The Commission is publishing this notice of Amendment 
No. 2 and approving the proposed rule change, as modified by Amendment 
No. 2, on an accelerated basis.
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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. 80358 (March 31, 
2017), 82 FR 16865 (April 6, 2017) (``Notice'').
    \4\ See Securities Exchange Act Release No. 80735 (May 19, 
2017), 82 FR 24173 (May 25, 2017) (``Extension'').
    \5\ In Amendment No. 2, the Exchange replaced the proposal in 
its entirety. Amendment No. 2, in addition to changing the proposed 
distribution standard to 300 public stockholders, rather than 300 
total stockholders as originally proposed, specifies that NYSE 
Listed Company Manual (``Manual'') Section 802.01A does not apply to 
SPACs, defines the term ``public stockholders,'' and corrects 
typographical errors. Text of Amendment No. 2 is available as a 
comment letter to this filing.
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II. Description of the Proposal, as Modified by Amendment No. 2

A. General Background on SPACs

    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. The 
Exchange represented that in an 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 different 
structure, SPACs do not have any prior financial history, at the time 
of their listing, like operating companies.

B. Proposed Changes to Round Lot Holders in Initial Listing Standards

    NYSE Manual Section 102.06 sets forth the initial listing standards 
that apply to SPACs.\6\ Currently, in order to list on the Exchange, a 
SPAC is required to meet, among other standards, initial distribution 
requirements including having at least 400 round lot holders.\7\ The 
Exchange proposes to lower the initial distribution requirements of 
round lot holders from 400 to 300 for a SPAC listing either in 
connection with an IPO or a transfer from another exchange or a 
quotation listing.\8\
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    \6\ 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 
Section 102.06 of the Manual.
    \7\ See NYSE Manual Section 102.01A.
    \8\ The other alternative distribution criteria that currently 
apply to transfers and quotation listings will remain unchanged but 
is being moved so that all the criteria for listing SPACs will be 
contained in Section 102.06 of the Manual. See Notice, supra note 3 
and discussion below.
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C. Proposed Changes to Total Stockholders in Continued Listing 
Standards

    NYSE Manual Section 802.01B sets forth the continued listing 
standards that apply to SPACs. Currently, a SPAC is deemed below the 
continued listing standards if, among other things, the SPAC's total 
number of stockholders is less than 400. The Exchange proposes to 
change this continued distribution requirement to 300 public 
stockholders.\9\ In connection with the amendment, the Exchange 
proposes to define ``public stockholders'' to exclude holders that are 
directors, officers, or their immediate families and holders of other 
concentrated holdings of 10% or more.\10\
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    \9\ See Amendment No. 2, supra note 5 and accompanying text. As 
with the initial standards, the alternative shareholder and other 
distribution continued listing standards will remain unchanged.
    \10\ The Exchange represents that it primarily relies on the 
beneficial ownership disclosure included in the issuers' 
registration statements and annual meeting proxy statements in 
calculating publicly held shares and public stockholders, but also 
refers to other SEC filings where appropriate and its determinations 
are made in accordance with Rule 13d-3 under the Act. The Exchange 
stated that this is its practice under all of its rules where these 
calculations must be made. The Exchange also stated that this is the 
practice of NYSE MKT and the Exchange believes that its approach is 
generally consistent with that of the NASDAQ Stock Market.
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D. Technical Changes

    The Exchange also has proposed four technical changes to its 
initial and continued listing standards on SPACs. First, the Exchange 
proposed to consolidate the SPAC initial listing standards in Section 
102.06 of the Manual, rather than referring to Section 102.01A of the 
Manual, which applies for operating companies. Second, the Exchange 
proposed to move a sentence in Section 102.06 of the Manual that 
details the minimum price per share for a SPAC at the time of initial 
listing from the end to the beginning of the same paragraph. Third, the 
Exchange proposed to delete an incorrect reference to footnote (A) that 
is included following the aggregate market value requirement in Section 
102.06 of the Manual.\11\ Finally, the Exchange proposed to add 
language to the continued listing criteria applicable to SPACs set 
forth in Section 801.01B of the Manual clarifying that the distribution 
standards in Section

[[Page 32023]]

802.01A of the Manual do not apply to SPACs. \12\
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    \11\ The Exchange also proposes correct two instances of a 
typographical error included in the original filing by adding a 
second ``or'' to the phrase ``Number of holders of 100 shares or 
more or of a unit of trading. . .'' in Section 102.06 of the Manual. 
See Amendment No. 2.
    \12\ The Exchange represented that the proposed rule change 
would not affect the status of NYSE listed securities under Rule 
3a51-1(a) of the Act (``Penny Stock Rule'')1 because the proposed 
standards will satisfy the requirements of Rule 3a51-1(a)(2) under 
the Act.1 While the proposed requirements do not include a 
requirement that newly-listed SPACs have at least $5 million in 
stockholders' equity as required by Rule 3a51-1(a)(2)(i)(A)(1) under 
the Act,1 the Exchange represented that the current requirement for 
a SPAC to place at least 90% of its offering proceeds in trust upon 
consummation of its IPO would ensure that all SPACs meet the Penny 
Stock Rule's requirement. To be considered for listing, the Exchange 
requires SPACs to demonstrate, among other things, an aggregate 
market value of $100,000,000 and a market value of publicly-held 
shares of $80,000,000. See NYSE Listed Company Manual Sections 
102.06.
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III. Solicitation of Comments on Amendment No. 2

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 2 
is consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2017-11 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2017-11. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site 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 will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make publicly available. All 
submissions should refer to File Number SR-NYSE-2017-11 and should be 
submitted on or before August 1, 2017.

IV. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change, as 
modified by Amendment No. 2, and finds that it is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange and, in particular, the 
requirements of Section 6(b) of the Act and the rules and regulations 
thereunder.\13\ Specifically, the Commission finds that the proposal is 
consistent with Sections 6(b)(5) of the Act,\14\ 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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    \13\ 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).
    \14\ 15 U.S.C. 78f(b)(5).
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    The development and enforcement of adequate listing standards 
governing the initial and continued distribution 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 listing 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 
distributed, maintenance criteria allow an exchange to monitor the 
status and trading characteristics of that security to ensure that the 
security 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. One of the important investor protection 
safeguards incorporated into the Exchange's listing standards for SPACs 
is the right of public shareholders \15\ to convert their shares for a 
pro rata share of the cash held in the trust account, provided that the 
business combination is approved and consummated.\16\ The Exchange 
noted that the securities of SPACs typically have a trading price very 
close to their liquidation value. The Exchange stated its belief that 
due to this trading characteristic, liquidity and market efficiency 
concerns relevant to listed operating companies do not arise to the 
same degree.
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    \15\ Section 801.01B of the Manual defines public shareholders 
would exclude holders that are directors, officers, or their 
immediate families and holders of other concentrated holdings of 10% 
or more.
    \16\ See NYSE Listed Company Manual Sections 102.06(b). If a 
shareholder vote is not held on a Business Combination for which the 
company must file and furnish a proxy or information statement 
subject to Regulation 14A or 14C under the Act, the company 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 under the 
Act (which regulates issuer tender offers). See NYSE Listed Company 
Manual Sections 102.06(c).
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    The Exchange proposes to amend the initial and continued 
distribution requirement for a SPAC listing. For initial distribution, 
either in connection with an IPO or a transfer from another exchange or 
a quotation listing, the Exchange proposes to lower the round lot 
holders requirement from at least 400 round lot holders to at least 300 
round lot holders. For continued distribution, the Exchange proposes to 
change the stockholders requirement from 400 total stockholders to 300 
public stockholders. The Commission notes that Nasdaq Capital Market 
has similar distribution requirements, and unlike the stockholders of 
many operating companies, public stockholders of a SPAC have a cash 
conversion right in certain limited circumstances related to the SPAC's 
business combination.\17\ The Commission has previously stated that the 
conversion right is an important part of the investor protection 
mechanism for SPAC stockholders.
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    \17\ If the tender offer option is used all shareholders must be 
provided an opportunity to redeem their shares for cash. See note 
16, supra.
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    In support of its proposal, the Exchange stated that the 
stockholder

[[Page 32024]]

requirements are important because the existence of a significant 
number of stockholders can be an indicia of a liquid trading market 
which helps to support price discovery. The Exchange further 
represented, in contrast to operating companies, that the securities of 
a SPAC trade very close to their liquidation value. The Exchange 
concludes that because the pricing of a SPAC is related to its 
liquidation value there is less reliance on stockholder requirements 
when listing SPACs, as opposed to operating companies, to assure 
appropriate price discovery.
    The Commission believes that the conversion right and the nature of 
SPAC securities pricing support the proposed amendment to treat 
securities of SPACs and operating companies differently. In approving 
the NYSE's proposal, the Commission notes that we are doing so only in 
the narrow context of SPACs based on the NYSE's representations that 
the added liquidity and price discovery that additional shareholders 
can provide to the market place is less important in the context of a 
SPAC due to the price discovery issues noted above. As NYSE also notes 
in its filing, once the SPAC becomes an operating company it will have 
to meet the higher 400 round lot holder requirement to remain listed 
and the 400 total stockholders continued listing standard requirement, 
which is the same standard for any operating company. As noted earlier, 
the Exchange proposed to make a number of technical amendments. The 
Commission finds these technical changes should clarify the Exchange's 
rules, as well as help to avoid confusion on which continued 
distribution standards apply, and are consistent with the requirements 
of the Act. Based on the foregoing, the Commission finds that the 
proposed changes to SPAC listing standards are consistent with the 
requirements of the Act.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\18\ for approving the proposed rule change, as modified by 
Amendment No. 2, prior to the 30th day after publication of Amendment 
No. 2 in the Federal Register. Amendment No. 2 revises the proposed 
continued listing distribution standards from a requirement of 300 
total stockholders to a requirement of 300 public stockholders, 
specifies that Section 802.01A does not apply to SPACs, defines the 
term ``public stockholders'', and corrects typographical errors. The 
Commission notes that the other changes proposed in the rule change are 
not being amended and was subject to a full notice-and-comment period 
and no comments were received.\19\ The revisions in Amendment No. 2 
align the proposal more closely to Nasdaq Capital Market with respect 
to the public stockholders continued distribution requirement and 
definition of the term, adds clarity to the proposal, and does not 
raise any novel regulatory concerns. Accordingly, the Commission finds 
that good cause exists to approve the proposal, as modified by 
Amendment No. 2, on an accelerated basis.
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ See note 6, supra.
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VI. Conclusion

    It is therefore ordered that pursuant to Section 19(b)(2) of the 
Act \20\ that the proposed rule change, as modified by Amendment No. 2, 
(SR-NYSE-2017-11) be, and hereby is, approved.
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    \20\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority. \21\
Eduardo A. Aleman,
Assistant Secretary.
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    \21\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-14430 Filed 7-10-17; 8:45 am]
 BILLING CODE 8011-01-P


