[Federal Register Volume 82, Number 233 (Wednesday, December 6, 2017)]
[Notices]
[Pages 57632-57635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-26220]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82180; File No. SR-NYSE-2017-53]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Amend the Listed Company 
Manual for Special Purpose Acquisition Companies To Lower the Initial 
Holder Requirement From 300 to 150 Round Lot Holders and To Eliminate 
Completely the 300 Public Stockholders Continued Listing Requirement, 
To Require at Least $5 Million in Net Tangible Assets for Initial and 
Continued Listing, and To Impose a 30-Day Deadline To Demonstrate 
Compliance With the Initial Listing Requirements Following a Business 
Combination

November 30, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on November 16, 2017, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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 amend the Listed Company Manual (the 
``Manual'') to revise its initial and continued listing standards for 
Acquisition Companies. The proposed rule change is available on the 
Exchange's Web site at www.nyse.com, 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 self-regulatory organization 
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 those statements may be examined at 
the places specified in Item IV below.

[[Page 57633]]

The Exchange has prepared summaries, set forth in sections A, B, and C 
below, of the most significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Section 102.06 of the Manual sets forth initial listing 
requirements applicable to a company whose business plan is to complete 
an initial public offering and engage in a merger or acquisition with 
one or more unidentified companies within a specific period of time (an 
``Acquisition Company'' or ``AC'').\4\ Section 802.01B of the Manual 
sets forth the continued listing standards for ACs. The Exchange 
proposes to change its initial and continued listing standards for 
Acquisition Companies as follows:
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    \4\ Section 102.06 provides that an Acquisition Company must 
complete one or more business combinations having an aggregate fair 
market value of at least 80% of the value of the deposit account 
(the ``Business Combination'') within 36 months of the effectiveness 
of its IPO registration statement.
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     Reduce the number of round-lot holders required for 
initial listing from 300 to 150 and eliminate the 300 [sic] holders 
continued listing requirement.
     Require Acquisition Companies to meet a requirement at the 
time of initial listing and on a continuing basis that they have net 
tangible assets (i.e., total assets less intangible assets and 
liabilities) that exceed $5 million.
     Apply the same initial listing criteria to listing in 
connection with an IPO and in connection with a transfer or quotation,
     Provide a 30 day period after a Business Combination for a 
company originally listed as an Acquisition Company to meet initial 
listing requirements.
Proposal To Reduce Number of Round-Lot [sic] Holders
    Section 102.06 currently requires, in part, that an Acquisition 
Company: (i) Deposit into and retain in an escrow account at least 90% 
of the gross proceeds of its initial public offering through the date 
of its Business Combination; (ii) complete the Business Combination 
within 36 months of the effectiveness of the IPO registration 
statement; and (iii) provide the public shareholders who object to the 
Business Combination with the right to convert their common stock into 
a pro rata share of the funds held in escrow.\5\ Following the Business 
Combination, the combined company must meet the Exchange's requirements 
for initial listing.
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    \5\ Section 102.06 also requires that each proposed business 
combination be approved by a majority of the company's independent 
directors.
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    Acquisition Companies often have difficulty demonstrating 
compliance with the shareholder requirement for initial and continued 
listing.\6\ The shareholder requirement, along with the listing 
requirements relating to total market capitalization and market value 
of publicly held shares, is designed to help ensure that a security has 
a sufficient number of investors to provide a liquid trading market.\7\ 
Based on conversations with marketplace participants, including the 
sponsors of Acquisition Companies and lawyers and bankers that advise 
these companies, the Exchange believes that the difficulties 
Acquisition Companies have in demonstrating compliance with the 
shareholder requirement are due to intrinsic features of Acquisition 
Companies, which limit the number of retail investors interested in the 
vehicle and encourage owners to hold their shares until a transaction 
is announced, which can be as long as three years after the initial 
public offering. These same intrinsic features of Acquisition Companies 
also limit the benefit to investors of a shareholder requirement.
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    \6\ Section 102.06 requires an Acquisition Company listing in 
connection with an IPO to have a minimum of 300 round lot holders 
and Section 802.01B requires an Acquisition Company to have at least 
300 public stockholders on a continued basis. Section 102.06 
requires companies listing upon transfer or as a quotation listing 
to meet the following distribution requirements:
    Number of holders of 100 shares or more or of a unit of trading 
if less than 100 shares 300
    OR
    Total stockholders 2,200
    Together with average monthly trading volume 100,000 shares (for 
most recent 6 months)
    OR
    Total stockholders 500
    Together with average monthly trading volume 1,000,000 shares 
(for most recent 12 months)
    AND
    Number of publicly held shares 1,100,000 shares
    ``Public stockholders'' exclude holders that are directors, 
officers, or their immediate families and holders of other 
concentrated holdings of 10% or more.
    \7\ See, e.g., Rocky Mountain Power Company, Securities Exchange 
Act Release No, 40648 (November 9, 1998) (text at footnote 11).
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    In addition, because the price of an Acquisition Company is based 
primarily on the value of the funds it holds in trust, and the 
Acquisition Company's shareholders have the right to redeem their 
shares for a pro rata share of that trust in conjunction with the 
Business Combination, the impact of the number of shareholders on an 
Acquisition Company security's price is less relevant than is the case 
for operating company common stocks. For this reason, Acquisition 
Companies, historically, trade close to the value in the trust, even 
when they have had few shareholders. These trading patterns suggest 
that Acquisition Companies' low number of shareholders has not resulted 
in distorted prices.
    The Exchange believes that an Exchange Traded Fund (``ETF'') is 
somewhat similar to an Acquisition Company in this regard in that an 
arbitrage mechanism keeps the ETF's price close to the value of its 
underlying securities, even when trading in the ETF's shares is 
relatively illiquid. The initial listing requirements for ETFs do not 
include a shareholder requirement and only 50 shareholders are required 
for continued listing after the ETF has been listed for one year.
    For these reasons, the Exchange proposes to reduce the shareholder 
requirement for the initial listing of an Acquisition Company to 150 
round lot shareholders for all Acquisition Companies, including IPOs, 
transfers and quotation listings, and to eliminate the 300 total [sic] 
holder continued requirement.
    The Exchange notes that it can be difficult for a company, once 
listed, to obtain evidence demonstrating the number of its shareholders 
because many accounts are held in street name and shareholders may 
object to being identified to the company. As a result, companies must 
seek information from broker-dealers and from third-parties that 
distribute information such as proxy materials for the broker-dealers. 
This process is time-consuming and particularly burdensome for 
Acquisition Companies because most operating expenses are typically 
borne by the Acquisition Company's sponsors due to the requirement that 
the gross proceeds of the initial public offering remain in the trust 
account until the closing of the business combination.\8\ Accordingly, 
given the short life of an Acquisition Company, the trading 
characteristics of Acquisition Companies, and the requirement to meet 
the initial listing standards at the time of the Business Combination, 
the Exchange also

[[Page 57634]]

proposes to eliminate the continued listing shareholder requirement for 
Acquisition Companies.\9\
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    \8\ While under Section 102.06 an Acquisition Company could pay 
operating and other expenses, subject to a limitation that 90% of 
the gross proceeds of the company's offering must be retained in 
trust account, the market standard for Acquisition Companies is 
typically that 100% of the gross proceeds from the IPO are kept in 
the trust account and only interest earned on that account is 
available to be used to pay taxes and a limited amount of operating 
expenses. Marketplace participants have also indicated that the 
current trend is to allow interest earned to be used for payments of 
taxes only, thus placing the burden for all operating expenses on 
the sponsors.
    \9\ The Exchange notes that any Acquisition Company listed on 
the NYSE will be allocated to a Designated Market Maker. As a 
result, the Exchange does not expect that the proposed change will 
result in illiquidity or other problems trading the securities of 
Acquisition Companies.
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Proposal To Add Net Tangible Asset Requirement
    To ensure that ACs listed on the Exchange are exempt from 
definition of a penny stock under Commission rules, the Exchange 
proposes to require ACs to have net tangible assets \10\ in excess of 
$5,000,000 at the time of initial listing and on a continuing basis.
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    \10\ Net tangible assets are total assets, less intangible 
assets and liabilities. The required level of net tangible assets 
must be demonstrated on the Company's most recent audited financial 
statements filed with, and satisfying the requirements of, the 
Commission or Other Regulatory Authority (as defined in Section 
107.03). In the case of an AC listing at the time of its IPO, net 
tangible assets may be demonstrated in a public filing, such as the 
AC's registration statement, on a pro forma basis reflecting the 
offering.
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    Rule 3a51-1 under the Act \11\ defines a ``penny stock'' as any 
equity security that does not satisfy one of the exceptions enumerated 
in subparagraphs (a) through (g) under the Rule. If a security is a 
penny stock, Rules 15g-1 through 15g-9 under the Act \12\ impose 
certain additional disclosure and other requirements on brokers and 
dealers when effecting transactions in such securities. Rule 3a51-
1(a)(2) under the Act \13\ excepts from the definition of penny stock 
securities registered on a national securities exchanges that have 
initial listing standards that meet certain requirements, including, in 
the case of primary common stock, 300 round lot holders. Rule 3a51-1 
also includes alternative exceptions from the definition of penny 
stock.
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    \11\ 17 CFR 240.3a51-1.
    \12\ 17 CFR 240.15g-1 et seq.
    \13\ 17 CFR 240.3a51-1(a)(2).
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    By proposing to require ACs to have net tangible assets of at least 
$5 million on an initial and continued basis,\14\ the securities of 
such companies will satisfy the exclusion from being a penny stock in 
Rule 3a51-1(g)(1) of the Act.\15\ The Exchange would commence immediate 
suspension and delisting procedures with respect to any Acquisition 
Company that fell below the net tangible assets continued listing 
standard. An AC will not be eligible to follow the procedures outlined 
in Sections 802.02 and 802.03 with respect to these criteria and any 
such security will be subject to immediate suspension and the delisting 
procedures as set forth in Section 804.
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    \14\ The required level of net tangible assets must be 
demonstrated on the Company's most recent audited financial 
statements filed with, and satisfying the requirements of, the 
Commission or Other Regulatory Authority (as defined in Section 
107.03). In the case of an AC listing at the time of its IPO, net 
tangible assets may be demonstrated in a public filing, such as the 
AC's registration statement, on a pro forma basis reflecting the 
offering. Section 107.03 defines an ``Other Regulatory Authority'' 
as: (i) In the case of a bank or savings authority identified in 
Section 12(i) of the Exchange Act, the agency vested with authority 
to enforce the provisions of Section 12 of the Exchange Act; or (ii) 
in the case of an insurance company that is subject to an exemption 
issued by the Commission that permits the listing of the security, 
notwithstanding its failure to be registered pursuant to Section 
12(b), the Commissioner of Insurance (or other officer or agency 
performing a similar function) of its domiciliary state.
    \15\ 17 CFR 240.3a51-1(g)(1). All Acquisition Companies 
currently listed satisfy this alternative.
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Period for Company To Demonstrate That It Satisfies Initial Listing 
Requirements
    Last, the Exchange notes that the existing rules require that 
following an Acquisition Company's Business Combination, the resulting 
company must satisfy all initial listing requirements, including the 
shareholder requirements set forth in Section 102.01A.To address the 
delays described above associated with obtaining information about the 
number of shareholders holding shares in ``street name'' accounts, the 
Exchange proposes to allow a company to demonstrate that it meets the 
initial listing requirements with respect to shareholders within 30 
days following a business combination. If the company has not 
demonstrated that it meets the requirements for initial listing in that 
time, the Exchange will commence delisting proceedings and immediately 
suspend trading in the company's securities. An AC will not be eligible 
to follow the procedures outlined in Sections 802.02 and 802.03 with 
respect to any failure to meet the applicable initial listing criteria 
at the time of its Business Combination and any such security will be 
subject to immediate suspension and the delisting procedures as set 
forth in Section 804.
    These proposed changes will be effective upon approval of this rule 
by the Commission.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Exchange Act,\16\ in general, and furthers the 
objectives of Section 6(b)(5) of the Exchange Act,\17\ in particular in 
that it is designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, 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. While the change would allow 
Acquisition Companies to list with fewer shareholders, this proposed 
change is consistent with the investor protection provisions of the Act 
because other protections help assure that market prices will not be 
distorted by any potential resulting lack of liquidity, which is the 
underlying purpose of the shareholder requirement. In particular, the 
ability of a shareholder to redeem shares for a pro rata share of the 
trust helps assure that the Acquisition Company will trade close to the 
value of the assets held in trust.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change will also continue to assure that any 
listed Acquisition Company satisfies an exclusion from the definition 
of a ``penny stock'' under the Act by imposing a new requirement that 
an Acquisition Company have upon initial listing and maintain $5 
million of net tangible assets and subject any Acquisition Company that 
falls below that standard to immediate suspension and delisting 
procedures.
    Thus, this change will remove impediments to and perfect the 
mechanism of a free and open market by removing listing requirements 
that prohibit certain companies from listing or remaining listed 
without any concomitant investor protection benefits. In addition, the 
change would also limit the amount of time that an Acquisition Company 
could remain listed following a business combination if it has not 
demonstrated compliance with the initial listing requirements, thereby 
enhancing investor protection. Accordingly, the Exchange believes that 
the proposal satisfies the requirements of the Act.
    The proposal to provide companies with 30 days to demonstrate that 
they meet all applicable initial listing standards after a Business 
Combination is intended to address the difficulty companies have in 
identifying the number of holders they have immediately upon 
consummation of their Business Combination. Acquisition Company 
shareholders typically have the right to request redemption of their 
securities until immediately before consummation and it is therefore 
impracticable for companies to identify the number of round-lot holders

[[Page 57635]]

immediately to demonstrate their qualification for initial listing. The 
proposed 30 day period will relate only to a company's ability to 
demonstrate its compliance with the holders requirement, as a company's 
compliance with the earnings or global market capitalization and stock 
price requirements will be apparent at the time of consummation of the 
Business Combination. This proposed change is consistent with the 
protection of investors and the public interest, as it does not alter 
the substantive quantitative requirements a company must meet to remain 
listed.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The purpose of the proposed 
rule is to adopt initial and continued listing standards for 
Acquisition Companies that better reflect the characteristics and 
trading market for Acquisition Companies. While the rule may permit 
more Acquisition Companies to list, or remain listed, on the Exchange, 
other exchanges could adopt similar rules to compete for such listings. 
As such, the Exchange does not believe it imposes any burden on 
competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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 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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSE-2017-53 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-2017-53. 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 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-NYSE-2017-53 and should be 
submitted on or before December 27, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-26220 Filed 12-5-17; 8:45 am]
BILLING CODE 8011-01-P


