[Federal Register Volume 86, Number 32 (Friday, February 19, 2021)]
[Notices]
[Pages 10379-10381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-03337]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91120; File No. SR-NYSE-2020-90]


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 Requirement Applicable to Special 
Purpose Acquisition Companies Upon Consummation of a Business 
Combination Concerning Compliance With the Round Lot Shareholder 
Requirement

February 12, 2021.

I. Introduction

    On October 27, 2020, 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 its listing requirements applicable to 
special purpose acquisition companies (``SPACs'' or ``Acquisition 
Companies'') upon consummation of a business combination by allowing 
such companies 15 calendar days following the closing of a business 
combination to demonstrate compliance with the Exchange's round lot 
shareholder requirement. The proposed rule change was published for 
comment in the Federal Register on November 16, 2020.\3\ On December 
21, 2020, pursuant to Section 19(b)(2) of the Act,\4\ the Commission 
designated a longer period within which to approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to disapprove the proposed rule change to February 
14, 2021.\5\ The Commission has received no comment letters on the 
proposed rule change. The Commission is instituting proceedings 
pursuant to Section 19(b)(2)(B) of the Act \6\ to determine whether to 
approve or disapprove 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. 90382 (November 9, 
2020), 85 FR 73121 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 90739, 85 FR 85759 
(December 29, 2020).
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change

    An Acquisition Company or SPAC is 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.\7\ NYSE's listing rules require, among other things, a 
SPAC to deposit and retain at least 90% of the proceeds from its 
initial public offering (``IPO'') in an escrow account, 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 its IPO registration statement, and provide the public 
shareholders, if a vote is held, 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.\8\
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    \7\ See Securities Exchange Act Release No. 57785 (May 6, 2008), 
73 FR 27597 (May 13, 2008) (SR-NYSE-2008-17) (adopting Section 
102.06 of the Listed Company Manual (``Manual''). See also Notice, 
supra note 3.
    \8\ See Section 102.06 of the Manual. Under Section 102.06 of 
the Manual, if a vote is not held on the business combination the 
company must provide all shareholders with the opportunity to redeem 
all their shares into a pro rata share of the funds held in escrow 
pursuant to Rule 13e-4 and Regulation 14E under the Securities 
Exchange Act of 1934, which regulates issuer tender offers.
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    Following each business combination, the combined company is 
subject to Section 801 and Section 802.01 of the Manual in its entirety 
and will be required immediately to meet those requirements, which 
include: (i) A price per share of at least $4.00; (ii) a global market 
capitalization of at least $150,000,000; (iii) an aggregate market 
value of publicly-held shares of at least $40,000,000; and (iv) the 
requirements with respect to shareholders and publicly-held shares set 
forth in Section 102.01A for companies listing in connection with an 
initial public offering, including the round lot shareholder 
requirement.\9\ If the combined company does not meet the requirements 
of Sections 801 and 802.01 of the Manual following a business 
combination, Section 802.01B of the Manual provides that a SPAC will be 
promptly subject to suspension and delisting proceedings.
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    \9\ See Section 802.01B of the Manual. The applicable 
requirement is 400 holders of round lots.
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    In its proposal, the Exchange stated that its existing rules 
require that ``an Acquisition Company must satisfy all initial listing 
requirements immediately upon consummation of its Business 
Combination.'' \10\ The Exchange asserted, however, that Section 
802.01B of the Manual does not provide a timetable for the company to 
demonstrate that it satisfies those requirements. Accordingly, the 
Exchange proposed to specify that if the SPAC demonstrates that it will 
satisfy all requirements except the applicable round lot shareholder 
requirement, then the SPAC will receive 15 calendar days following the 
closing to demonstrate that it satisfied the applicable round lot 
shareholder requirement immediately following the transaction's 
closing.
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    \10\ See Notice, supra note 3, at 73122.
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    In addition, the Exchange stated that, when a listed SPAC 
consummates its business combination, the Exchange also considers 
whether the business combination gives rise to a ``back door listing'' 
as described in Section 703.08(E) of the Manual. If the resulting 
company would not qualify for original listing, including by not 
meeting the applicable distribution standards, the Exchange will 
promptly initiate suspension and delisting of the SPAC. The Exchange 
proposed to modify its rule in relation to business combinations that 
give rise to a ``back door listing'' to specify that if the SPAC 
demonstrates that it will satisfy all requirements except the 
applicable round lot shareholder requirement, then the company will 
receive 15 calendar days following the closing to demonstrate that it 
satisfied the applicable round lot shareholder requirement immediately 
following the transaction's closing.\11\
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    \11\ See proposed amendment to Section 802.01B of the Manual. 
See also Notice, supra note 3, at 73122.
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    The Exchange stated that it determines compliance with the round 
lot shareholder requirement at the time of a business combination by 
reviewing a company's public disclosures and information provided by 
the company about the transaction.\12\ According to the Exchange, if it 
cannot determine compliance using public information, it will typically 
request the company to provide additional information such as 
registered shareholder lists from the company's transfer agent, data 
from Cede & Co. about shares held in street name, or data from broker-
dealers and third parties that distribute information such as proxy 
materials for the broker-dealers. If the company can provide 
information demonstrating compliance before the business combination 
closes,

[[Page 10380]]

the Exchange stated that no further information would be required.
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    \12\ NYSE states, for example, that the merger agreement may 
result in the Acquisition Company issuing a round lot of shares to 
more than 400 holders of the target of the business combination at 
closing.
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    However, the Exchange asserted that in some cases it can be 
difficult for a company to obtain evidence demonstrating the number of 
shareholders that the company has or will have following a business 
combination. The Exchange stated that shareholders in a SPAC may redeem 
or tender their shares until just before the time of the business 
combination, and the SPAC may not know how many shareholders will 
choose to redeem until very close to the consummation of the business 
combination. The Exchange stated that this could impact its ability to 
determine compliance before the business combination closes, in cases 
where the number of round lot shareholders is close to the applicable 
requirement.
    Accordingly, for a SPAC that has demonstrated that it will satisfy 
all of the initial listing requirements except for the round lot 
shareholder requirement before consummating the business combination 
(including the initial listing standards that are applicable in the 
event that the business combination gives rise to a ``back door 
listing''), the Exchange has proposed to allow the SPAC 15 calendar 
days after the closing of the business combination to demonstrate that 
it also complied with the round lot requirement at the time of the 
business combination. The Exchange stressed that under its proposal a 
SPAC must still demonstrate that it satisfied the round lot shareholder 
requirement immediately following the business combination, and that 
the proposal merely would give the SPAC 15 calendar days to provide 
evidence that it did.
    The Exchange stated that the proposal ``balances the burden placed 
on the Acquisition Company to obtain accurate shareholder information 
for the new entity and the need to ensure that a company that does not 
satisfy the initial listing requirements following a Business 
Combination enters the delisting process promptly.'' \13\ The Exchange 
further stated that if the company does not evidence compliance within 
the proposed time period, Exchange staff would immediately commence 
suspension and delisting proceedings with respect to the company.
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    \13\ The Exchange stated that shareholders of the SPAC would be 
harmed if NYSE issued a delisting determination at a time when the 
company did, in fact, satisfy all initial listing requirements but 
could not yet provide proof.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2020-90 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \14\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved.
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    \14\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\15\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with the Act, and in 
particular, 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 a free and open market and a national market 
system, and, in general, to protect investors and the public interest; 
and are not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.'' \16\
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    \15\ Id.
    \16\ 15 U.S.C. 78f(b)(5).
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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. 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.\17\
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    \17\ See, e.g., Securities Exchange Act Release Nos. 57785 (May 
6, 2008), 73 FR 27597 (May 13, 2008) (SR-NYSE-2008-17) (stating that 
the distribution standards, which includes exchange holder 
requirements ``. . . should help to ensure that the [SPAC's] 
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) (SR-Nasdaq-2008-013) (approving a 
proposal to adopt listing standards for SPACs); and 86117 (June 14, 
2018), 84 FR 28879 (June 20, 2018) (SR-NYSE-2018-46) (disapproving a 
proposal to reduce the minimum number of public holders continued 
listing requirement applicable to SPACs from 300 to 100).
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    As discussed above, the Exchange proposed to provide a SPAC 15 
calendar days following the closing of a business combination to 
demonstrate that it satisfied the applicable round lot holder 
requirement immediately following the closing. The Exchange asserted 
that it can be difficult for a SPAC to obtain evidence demonstrating 
the number of holders it will have following the business combination 
because SPAC shareholders have the right to redeem or tender their 
shares until just before the time of such business combination. The 
Exchange, however, has provided no data or other evidence to support 
its position that SPACs have particular difficulties demonstrating 
compliance with the minimum number of holders requirements. For 
example, the Exchange has not provided any data showing the extent to 
which SPACs have been unable to meet the applicable minimum number of 
holders requirement immediately following the business combination, or 
the extent to which this was due to last minute redemptions by SPAC 
shareholders. The Exchange also has provided no data or other evidence 
showing how long it has taken SPACs that have been unable to meet the 
applicable minimum number of holders requirement, whether or not due to 
last minute shareholder redemptions, to come into compliance with such 
requirements.
    Further, the Exchange has not explained how providing a SPAC an 
additional 15 days following the closing of the business combination 
simply to demonstrate that it complied with the applicable minimum 
number of holders requirement immediately following the closing, would 
address the substantive compliance concerns associated with last minute 
shareholder redemptions by SPACs that are close to the minimum 
requirement. The Exchange also has not addressed the risk that, by 
waiting for SPACs to demonstrate compliance with the minimum number of 
holders requirements until after the closing of the business 
combination, non-compliant companies could be listed on the Exchange 
despite not meeting initial listing standards or those relating to a 
``back door listing,'' and have their securities continue to trade 
until the delisting process has been completed. As a result, a SPAC 
could complete a business combination and very soon thereafter be 
subject to delisting proceedings, and during such time its securities 
may trade with a number of holders that is substantially less than the 
required minimum. The Exchange has not addressed the impact this could 
have on SPAC shareholders and other market participants, or explained 
why subjecting them to these risks is

[[Page 10381]]

consistent with the protection of investors and the public interest, 
and the other requirements of Section 6(b)(5) of the Act.
    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.'' 
\18\ 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, 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.\19\
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    \18\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \19\ 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.

IV. Procedure: Request for Written 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 provision 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.\20\
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    \20\ 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 Cong., 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 March 12, 2021. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by March 26, 
2021. The Commission asks that commenters address the sufficiency of 
the Exchange's statements in support of the proposal, in addition to 
any other comments they may wish to submit about the proposed rule 
change.
    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-2020-90 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-2020-90. 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-2020-90 and should be submitted by 
March 12, 2021. Rebuttal comments should be submitted by March 26, 
2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(57).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-03337 Filed 2-18-21; 8:45 am]
BILLING CODE 8011-01-P


