
[Federal Register Volume 84, Number 21 (Thursday, January 31, 2019)]
[Notices]
[Pages 855-858]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-00499]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84984; File No. SR-NYSE-2018-46]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Amend the Listed Company Manual for Acquisition 
Companies To Reduce the Continued Listing Standards for Public 
Stockholders From 300 to 100 and To Enable the Exchange To Exercise 
Discretion To Allow Acquisition Companies a Reasonable Time Period 
Following a Business Combination To Demonstrate Compliance With the 
Applicable Quantitative Listing Standards

January 15, 2019.

I. Introduction

    On October 1, 2018, 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 the Listed Company Manual (``Manual'') 
for Special Purpose Acquisition Companies \3\ (``SPACs'') to

[[Page 856]]

reduce the minimum number of public stockholders required for continued 
listing from 300 to 100, and to enable the Exchange to exercise 
discretion to allow SPACs a reasonable time period following a business 
combination to demonstrate compliance with the applicable quantitative 
listing standards. The proposed rule change was published in the 
Federal Register on October 18, 2018.\4\ The Commission received one 
comment letter on the proposal.\5\ On November 29, 2018, the Commission 
extended the time period within which to approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to approve or disapprove the proposed rule change, 
to January 16, 2019.\6\ This order institutes proceedings under Section 
19(b)(2)(B) of the Act to determine whether to approve or disapprove 
the proposal.\7\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Throughout this order, we have used the term ``SPAC'' or 
``SPACs.'' These terms have the same meaning as ``Acquisition 
Company,'' which is the term used by the Exchange in its current 
proposed rule filing.
    \4\ See Securities Exchange Act Release No. 84420 (October 12, 
2018), 83 FR 52854 (October 18, 2018) (``Notice'').
    \5\ See Letter to Secretary, Commission, dated November 8, 2018, 
from Jeffrey P. Mahoney, General Counsel, Council of Institutional 
Investors (``CII Letter'').
    \6\ See Securities Exchange Act Release No. 84680 (November 29, 
2018), 83 FR 62942 (December 6, 2018).
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal and Summary of Comment

A. Background on SPACs

    A SPAC is a special purpose company whose business plan is to raise 
capital in an initial public offering (``IPO'') and, within a specific 
period of time, engage in a merger or acquisition with one or more 
unidentified companies. Among other things, a SPAC must keep 90% of the 
gross proceeds of its IPO in an escrow account through the date of a 
business combination.\8\ The SPAC must complete one or more business 
combinations, having an aggregate fair market value of at least 80% of 
the value of the escrow account, within 36 months of the effectiveness 
of the IPO registration statement.\9\ Additionally, public shareholders 
who object to a business combination have the right to convert their 
common stock into a pro rata share of the funds held in escrow.\10\ 
Following a business combination, the combined company must meet the 
Exchange's requirements for initial listing of an operating 
company.\11\
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    \8\ See Section 102.06 of the Manual.
    \9\ Id.
    \10\ See Section 102.06(b) of the Manual.
    \11\ This includes the requirement to maintain a minimum of 400 
round lot holders. See Sections 102.01A and 802.01B(ii) of the 
Manual.
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B. Description of the Proposed Changes to SPAC Listing Standards

    The Exchange has proposed two changes to its SPAC listing 
requirements. First, the Exchange has proposed to reduce the minimum 
number of public stockholders required for continued listing of a SPAC, 
prior to consummation of a business combination, from 300 to 100.\12\ 
According to the Exchange, SPACs have difficulty demonstrating 
compliance with the 300 public stockholders requirement because there 
is limited retail investor interest in SPACs, and those who do invest 
in SPACs tend to hold their shares until a transaction is announced. 
The Exchange also stated its belief that the number of stockholders is 
less relevant for SPACs than for operating companies, because ``the 
price of [a SPAC] is based primarily on the value of the funds it holds 
in trust, and the [SPAC]'s shareholders have the right to redeem their 
shares for a pro rata share of that trust in conjunction with the 
Business Combination.'' For these reasons, NYSE asserted that SPACs, 
historically, ``trade close to the value in the trust, even when they 
have had few shareholders,'' and that these ``trading patterns suggest 
that the low number of shareholders has not resulted in distorted 
prices.'' \13\
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    \12\ Public stockholders exclude holders that are directors, 
officers, or their immediate families and holders of other 
concentrated holdings of 10% or more. See Section 802.01B(ii) of the 
Manual.
    \13\ The Exchange also articulated some other arguments 
including that Exchange Traded Funds are ``somewhat similar'' and do 
not have as a high a continued listing shareholder requirements as 
SPACs. See Notice, supra note 4.
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    Second, the Exchange has proposed to provide itself discretion to 
allow SPACs a reasonable time period following a business combination 
to demonstrate compliance with the applicable quantitative listing 
standards for an operating company, rather than requiring SPACs to 
immediately comply with such standards. These listing standards 
include: (1) A price per share of at least $4.00; (2) a global market 
capitalization of at least $150,000,000; (3) an aggregate market value 
of publicly-held shares of at least $40,000,000; and (4) other 
quantitative requirements set forth in Section 102.01A of the Manual, 
including the requirement to maintain a minimum of 400 round lot 
holders and 1,100,000 publicly held shares.\14\ The Exchange has 
proposed to delete the language in Section 802.01B of the Manual 
requiring the combined entity to meet these listing standards 
``immediately upon consummation of the Business Combination.'' The 
Exchange represented that the purpose of this proposed amendment is to 
``allow the Exchange to exercise discretion to allow companies a 
reasonable period of time following a business combination to 
demonstrate compliance with the applicable quantitative listing 
standards, including the shareholders requirement.'' According to the 
Exchange, 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, so companies must seek this 
information from broker-dealers or their third-party agents. The 
Exchange stated that the process of identifying shareholders is 
especially burdensome for SPACs at the time of the business 
combination, because SPAC shareholders have the right to request 
redemption of their securities until immediately before consummation of 
the business combination.
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    \14\ See Section 802.01B of the Manual. See also note 13, supra.
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C. Summary of Comment Letter

    The Commission received one comment letter on the proposal.\15\ The 
commenter stated it could not support the current proposal as submitted 
``because it does not provide sufficient information for us to make a 
determination as to whether our members and the capital markets would 
benefit from the proposed changes.'' The commenter referenced its prior 
comments on similar proposals from the Exchange and Nasdaq, both of 
which were subsequently withdrawn.\16\ The commenter noted that the 
proposed reduction in the minimum number of holders from 300 to 100 is 
far more modest than eliminating it outright, as was proposed in the 
prior proposals, but believed that additional information would be 
helpful in determining

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whether the proposal would benefit investors.\17\
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    \15\ See supra note 5.
    \16\ See SR-NYSE-2017-53 (proposal to, among other things, lower 
the initial holders requirement from 300 to 150 round lot holders 
and to eliminate the continued holders requirement from 300 public 
stockholders to zero, and to impose a 30-day deadline to demonstrate 
compliance with certain initial listing requirements following a 
business combination). The Exchange filed the proposal on November 
16, 2017. The Exchange withdrew the proposal on June 21, 2018, after 
the Commission instituted proceedings to determine whether to 
approve or disapprove the proposal. See Securities Exchange Act 
Release Nos. 82180 (November 30, 2017), 82 FR 57632 (December 06, 
2017); 82531 (January 18, 2018), 83 FR 3371 (January 24, 2018); 
82804 (March 05, 2018), 83 FR 10530 (March 09, 2018); 83355 (May 31, 
2018), 83 FR 26331 (June 06, 2018); and 83570 (June 29, 2018), 83 FR 
31628 (July 6, 2018). See also SR-Nasdaq-2017-087, Order Instituting 
Proceedings, Securities Exchange Act Release No. 82478 (January 9, 
2018), 83 FR 2278 (January 16, 2018)
    \17\ See CII Letter at 2-3.
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IV. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2018-46 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act to determine whether the proposal should be 
approved or disapproved.\18\ Institution of such proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the proposal, as discussed below. Institution of disapproval 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved.
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    \18\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act, the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis and input concerning the proposed rule change's consistency 
with the Act \19\ and, in particular, with Section 6(b)(5) of the Act, 
which requires, among other things, that the rules of a national 
securities exchange be 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 free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.\20\
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    \19\ 15 U.S.C. 78f(b)(5).
    \20\ Id.
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    The Commission has consistently recognized the importance of the 
minimum number of holders and other similar requirements in exchange 
listing standards. For example, the Commission has repeatedly stated in 
approving exchange listing requirements, including NYSE's original SPAC 
listing standards, 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.\21\ Among other things, such listing standards help ensure that 
exchange listed securities have sufficient public float, investor base, 
and trading interest to provide the depth and liquidity necessary to 
promote fair and orderly markets.
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    \21\ See, e.g., Securities Exchange Act Release Nos. 57785 (May 
6, 2008), 73 FR 27597 (May 13, 2008) (stating that the distribution 
standards, which includes exchange holder requirements ``. . . 
should help to ensure that the [SPACs'] securities have sufficient 
public float, investor base, and liquidity to promote fair and 
orderly markets); 58228 (July 25, 2008), 73 FR 44794 (July 31, 
2008).
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    NYSE proposes to lower the minimum number of holders required for 
continued listing of a SPAC, in the period prior to consummation of a 
business combination, from 300 public holders to 100 public holders. In 
support of its proposal, NYSE asserts, among other things, that SPACs 
often have difficulty demonstrating compliance with the minimum number 
of holders requirements because there is limited retail investor 
interest in them, and that this requirement is less relevant for SPACs 
because they historically trade close to the value of the funds held in 
trust. The Commission, however, notes that NYSE has not provided any 
supporting evidence that SPACs have more difficulty complying with the 
existing minimum number of holders requirements than other listed 
companies. Further, the Commission does not believe that it is clear 
from NYSE's proposal how the historic SPAC trading patterns cited by 
NYSE bear on the role of the minimum number of holders requirements in 
maintaining fair and orderly markets, particularly since NYSE's 
observation was made when the current minimum number of holder 
requirements were in place.
    The Exchange also proposes to provide itself discretion to allow 
SPACs a reasonable time period following a business combination to 
demonstrate compliance with the applicable quantitative listing 
standards for an operating company, rather than requiring SPACs to 
immediately comply with such standards. While the NYSE's current 
listing standards require a SPAC to have at least 300 public holders 
prior to the business combination, NYSE's proposal would reduce that 
requirement to as few as 100 public holders. Following consummation of 
the business combination, the SPAC would be required to have at least 
400 round lot holders. It is not clear from NYSE's proposal that such a 
structure is workable, or how a listed SPAC would ensure it is in a 
position to sufficiently increase its number of holders, even within 
the ``reasonable time period'' contemplated by NYSE. Finally, the 
Exchange offered no explanation as to why SPACs require additional 
time, following consummation of the business combination, to meet the 
all of the other applicable quantitative listing standards for 
operating companies, including those relating to share price, global 
market capitalization, and the market value of publicly-held shares.
    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.'' 
\22\ The description of a proposed rule change, its purpose and 
operation, its effect, and a legal analysis of its consistency with 
applicable requirements must all be sufficiently detailed and specific 
to support an affirmative Commission finding,\23\ and any failure of an 
SRO to provide this information may result in the Commission not having 
a sufficient basis to make an affirmative finding that a proposed rule 
change is consistent with the Exchange Act and the applicable rules and 
regulations.\24\
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    \22\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \23\ See id.
    \24\ 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 Act to 
determine whether the proposal should be approved or disapproved.

V. Solicitation of Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, 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 proposal is 
consistent with Section 6(b)(5) or any other provisions of the Act, or 
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 views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\25\
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    \25\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants 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 Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Congr., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by February 21, 2019. Any

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person who wishes to file a rebuttal to any other person's submission 
must file that rebuttal by March 7, 2019. 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, in addition 
to any other comments they may wish to submit about the proposed rule 
change. In particular, the Commission seeks comment, including where 
relevant, any specific data, statistics, or studies, on the following:
    1. Would the proposal ensure that a sufficient liquid market exists 
for the shares of SPACs on the Exchange? Why or why not?
    2. With a lower requirement of 100 public stockholders, would the 
shares of SPACs still trade close to their redemption value as the 
Exchange has stated? If yes, would that trading pattern continue after 
an announcement of a business combination?
    3. With a lower requirement of 100 public stockholders, could 
shares of SPACs be more prone to manipulation, either post-IPO or at 
the time of the business combination announcement (but before 
consummation of the business combination)?
    4. Is there additional support for the claims that SPACs trade 
consistently as stated in the proposal? If so, what specific data 
should be provided, reviewed, and analyzed? How many SPACs have not 
been able to meet the Exchange's minimum number of public stockholders 
requirement pre-business combination, and how many stockholders did 
these SPACs have? How many SPACs have not been able to meet the 
applicable minimum number holders and other requirements immediately 
upon consummation of the business combination, and how were they 
deficient? How many of these SPACs have been delisted for failing to 
meet the applicable listing standards, and how long did they trade on 
the Exchange prior to delisting?
    5. The Exchange asserts that obtaining evidence demonstrating the 
number of shareholders after a business combination is ``especially 
burdensome for [SPACs].'' The Commission notes that the process of 
obtaining the number of shareholders is similar for all listed 
companies. Do commenters think SPACs are particularly burdened by this 
process and, if so, why?

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-2018-46 on the subject line.

Paper Comments

     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-2018-46. 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 (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 website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2018-46 and should be submitted on 
or before February 21, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-00499 Filed 1-30-19; 8:45 am]
BILLING CODE 8011-01-P


