[Federal Register Volume 86, Number 191 (Wednesday, October 6, 2021)]
[Notices]
[Pages 55664-55669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21770]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93219; File No. SR-NASDAQ-2021-054]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Modify Nasdaq IM-5101-2 To Permit an 
Acquisition Company To Contribute a Portion of Its Deposit Account to 
Another Entity in a Spin-Off or Similar Corporate Transaction

September 30, 2021.

I. Introduction

    On June 24, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to modify Nasdaq IM-5101-2 to 
permit an acquisition company to contribute a portion of the amount 
held in its deposit account to a deposit account of a new acquisition 
company in a spin-off or similar corporate transaction. The proposed 
rule change was published for comment in the Federal Register on July 
13, 2021.\3\ On August 25, 2021, 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.\5\ This order institutes proceedings pursuant to 
Section 19(b)(2)(B) of the Act \6\ to determine whether to approve or 
disapprove the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 92344 (July 7, 
2021), 86 FR 36841 (``Notice''). Comments received on the proposal 
are available on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2021-054/srnasdaq2021054.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 92751, 86 FR 48780 
(August 31, 2021). The Commission designated October 11, 2021 as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to approve or disapprove, 
the proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    Generally, the Exchange will not permit the initial or continued 
listing of a company that has no specific business plan or that has 
indicated that its

[[Page 55665]]

business plan is to engage in a merger or acquisition with an 
unidentified company or companies.\7\ However, the Exchange currently 
will permit the listing of a company whose business plan is to complete 
an initial public offering (``IPO'') and engage in a merger or 
acquisition with one or more unidentified companies within a specific 
period of time (``Acquisition Company'' or ``SPAC''), if the company 
meets all applicable initial listing requirements, as well as certain 
conditions described in Nasdaq IM-5101-2.\8\ Among other things, Nasdaq 
IM-5101-2 requires that at least 90% of the gross proceeds from the IPO 
and any concurrent sale by the Acquisition Company of equity securities 
must be deposited in a trust account maintained by an independent 
trustee, an escrow account maintained by an insured depository 
institution, or in a separate bank account established by a registered 
broker or dealer (collectively, a ``deposit account'').\9\ In addition, 
Nasdaq IM-5101-2 requires that within 36 months of the effectiveness of 
its IPO registration statement, or such shorter period that the 
Acquisition Company specifies in its registration statement, the 
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 (excluding any deferred underwriters fees and taxes 
payable on the income earned on the deposit account) at the time of the 
agreement to enter into the initial combination.\10\ Nasdaq IM-5101-2 
further requires each business combination to be approved by a majority 
of the Acquisition Company's independent directors.\11\ If the 
Acquisition Company holds a shareholder vote on a business combination, 
the business combination must be approved by a majority of the shares 
of common stock voting at the meeting and public shareholders voting 
against the business combination must have the right to convert their 
shares of common stock into a pro rata share of the aggregate amount 
then in the deposit account (net of taxes payable and amounts 
distributed to management for working capital purposes) if the business 
combination is approved and consummated.\12\ If a shareholder vote on a 
business combination is not held, the Acquisition 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 (net of taxes payable and amounts distributed to 
management for working capital purposes), pursuant to Rule 13e-4 and 
Regulation 14E under the Act, which regulate issuer tender offers.\13\
---------------------------------------------------------------------------

    \7\ See Nasdaq IM-5101-2.
    \8\ See id.
    \9\ See Nasdaq IM-5101-2(a).
    \10\ See Nasdaq IM-5101-2(b).
    \11\ See Nasdaq IM-5101-2(c).
    \12\ See Nasdaq IM-5101-2(d).
    \13\ See Nasdaq IM-5101-2(e).
---------------------------------------------------------------------------

    The Exchange now proposes to modify Nasdaq IM-5101-2 to allow a 
SPAC listed under that rule to contribute a portion of its deposit 
account to a deposit account of a new entity in a spin-off or similar 
corporate transaction (``SpinCo SPAC''). According to the Exchange, 
when a SPAC conducts its IPO, it raises the amount of capital that it 
estimates will be necessary to finance a subsequent business 
combination with its ultimate target; however, the Exchange believes 
that because a SPAC cannot identify or select a specific target at the 
time of its IPO, often the amount raised is not optimal for the needs 
of a specific target.\14\ The Exchange states that it is proposing to 
modify Nasdaq IM-5101-2 to permit what it believes is a more efficient 
structure whereby a SPAC can raise in its IPO the maximum amount of 
capital it anticipates it may need for a business combination 
transaction and then ``rightsize'' itself by contributing any amounts 
not needed to a SpinCo SPAC, which would be subject to the provisions 
of Nasdaq IM-5101-2, in the same manner as the original SPAC, and spun 
off to the original SPAC's shareholders.\15\
---------------------------------------------------------------------------

    \14\ See Notice, supra note 3, at 36841. The Exchange further 
states that ``[t]his has resulted in the inefficient, current 
practice of SPAC sponsors creating multiple SPACs of different sizes 
at the same time, with the intention to use the SPAC that is closest 
in size to the amount a particular target needs.'' Id.
    \15\ See id. The 36-month period to complete a business 
combination under Nasdaq IM-5101-2 would, however, be calculated for 
each SpinCo SPAC based on the date of the original SPAC's effective 
registration statement.
---------------------------------------------------------------------------

    Specifically, proposed Nasdaq IM-5101-2(f) would provide that a 
SPAC will be permitted to contribute a portion of the amount held in 
the deposit account to a deposit account of another entity (the 
``Contribution'') in a spin-off or similar corporate transaction, 
subject to the following conditions:

    (i) The requirements set forth in Nasdaq IM-5101-2(d) and (e) 
that shareholders of a SPAC must have the right to convert or redeem 
their shares of common stock into a pro rata share of the aggregate 
amount in the deposit account (net of taxes payable and amounts 
distributed to management for working capital purposes) at the times 
specified in such paragraphs may be based on the amounts in the 
deposit account of the SPAC at such times after having been reduced 
by the Contribution provided that, in connection with the 
Contribution, the SPAC's public shareholders shall have had the 
right, through one or more corporate transactions, to redeem a 
portion of their shares of common stock (or, if units were sold in 
the SPAC's IPO, units) for their pro rata portion of the amount of 
the Contribution in lieu of being entitled to receive shares or 
units in the SpinCo SPAC;
    (ii) the public shareholders of the SPAC receive shares or units 
of the SpinCo SPAC on a pro rata basis, except to the extent they 
have elected to redeem a portion of their shares of the SPAC in lieu 
of being entitled to receive shares or units in the SpinCo SPAC;
    (iii) the amount distributed to the SpinCo SPAC will remain in a 
deposit account for the benefit of the shareholders of the SpinCo 
SPAC in the same manner as described in Nasdaq IM-5101-2(a);
    (iv) the SpinCo SPAC meets all applicable initial listing 
requirements, as well as the conditions described in Nasdaq IM-5101-
2(a) through (e); it being understood that, following such spin-off 
or similar corporate transaction: (A) For purposes of Nasdaq IM-
5101-2(b) the 80% described therein shall,\16\ in the case of the 
SPAC, be calculated based on the aggregate amount remaining in the 
deposit account of the SPAC at the time of the agreement to enter 
into the initial combination after the Contribution to the SpinCo 
SPAC, and, in the case of the SpinCo SPAC, be calculated based on 
the aggregate amount in its deposit account at the time of its 
agreement to enter into its initial combination,\17\ and (B) for 
purposes of Nasdaq IM-5101-2(d) and (e),\18\ the right to convert 
and opportunity to redeem shares of common stock on a pro rata 
basis, respectively, shall, in the case of the SPAC, be deemed to 
apply to the aggregate amount remaining in the deposit account of 
the SPAC after the contribution to the SpinCo SPAC, and, in the case 
of the SpinCo SPAC, be deemed to apply to the aggregate amount in 
its deposit account;
---------------------------------------------------------------------------

    \16\ See supra note 10 and accompanying text, for a description 
of the requirements of Nasdaq IM-5101-2(b).
    \17\ As the Exchange states, this amount would be calculated 
after giving effect to the SpinCo SPAC's contribution to a 
subsequent SpinCo SPAC, if any. See Notice, supra note 3, at 36842.
    \18\ See supra notes 12-13 and accompanying text, for a 
description of the requirements of Nasdaq IM-5101-2(d) and (e).
---------------------------------------------------------------------------

    (v) in the case of the SpinCo SPAC, and any additional entities 
spun off from the SpinCo SPAC, each of which will also be considered 
a SpinCo SPAC, the 36-month period described in Nasdaq IM-5101-2(b) 
(or such shorter period that the original SPAC specifies in its 
registration statement) will be calculated based on the date of 
effectiveness of the SPAC's IPO registration statement; and
    (vi) in the aggregate, through one or more opportunities by the 
SPAC and one or more SpinCo SPACs, public shareholders will have the 
ability to convert or redeem shares, or receive amounts upon 
liquidation, for the full

[[Page 55666]]

amount of the deposit account established by the SPAC as described 
in Nasdaq IM-5101-2(a) (excluding any deferred underwriters fees and 
taxes payable on the income earned on the deposit account).\19\
---------------------------------------------------------------------------

    \19\ Proposed Nasdaq IM-5101-2(f) provides that the conditions 
set forth in the proposed rule would similarly apply to successive 
spin-offs or similar corporate transactions, ``mutatis mutandis.''

    The Exchange states that, under the proposal, it expects that the 
new structure will be implemented in the following manner. If a listed 
SPAC (the ``Original SPAC'') determines that it will not need all the 
cash in its deposit account for its initial business combination, the 
Original SPAC will designate the excess cash for a new deposit account 
of a SpinCo SPAC (the ``SpinCo Deposit Account,'' and the amount 
retained in the deposit account of the Original SPAC, the ``Retained 
SPAC Deposit Account'').\20\ The Exchange states that the amount 
designated for the SpinCo Deposit Account must continue to be held for 
the benefit of the shareholders of the Original SPAC until the 
completion of the spin-off transaction and, following the spin-off of 
the SpinCo SPAC to the Original SPAC's shareholders, the SpinCo Deposit 
Account would be subject to the same requirements as the deposit 
account of the Original SPAC.\21\
---------------------------------------------------------------------------

    \20\ See Notice, supra note 3, at 36841-42.
    \21\ See id. at 36842.
---------------------------------------------------------------------------

    According to the Exchange, the SpinCo SPAC would file a 
registration statement under the Securities Act of 1933 for purposes of 
effecting the spin-off of the SpinCo SPAC and, prior to the 
effectiveness of the registration statement, the Original SPAC would 
provide its public shareholders through one or more corporate 
transactions with the opportunity to redeem a pro rata amount of their 
holdings equal to the amount of the SpinCo Deposit Account divided by 
the per share amount in the Original SPAC's deposit account (the 
``redemption price'').\22\ The Exchange further states that, after 
completing the tender offer for the redemption and the effectiveness of 
the SpinCo SPAC's registration statement, the Original SPAC would 
contribute the SpinCo Deposit Account to a deposit account held by the 
SpinCo SPAC in exchange for shares or units of the SpinCo SPAC, which 
the Original SPAC would then distribute to its public shareholders on a 
pro rata basis through one or more corporate transactions pursuant to 
the SpinCo SPAC's effective registration statement.\23\
---------------------------------------------------------------------------

    \22\ See id. According to the Exchange, the redemption could 
occur, for example, through a partial cash tender offer for shares 
of the Original SPAC pursuant to Rule 13e-4 and Regulation 14E of 
the Act, and the redemption may be of a separate class of shares 
distributed to unitholders of the Original SPAC for the purpose of 
facilitating the redemption. See id. at 36842 n.4.
    \23\ See id. at 36842.
---------------------------------------------------------------------------

    According to the Exchange, the Original SPAC would then continue to 
operate as a SPAC until it completes its business combination and would 
offer redemption rights to its public shareholders in connection with 
that business combination in the same manner as a traditional SPAC, 
while the SpinCo SPAC would operate in the same manner as a traditional 
SPAC, except that it could effect a subsequent spin-off prior to its 
business combination like the Original SPAC.\24\ The Exchange states 
that if SpinCo SPAC does not elect to effect a spin-off, it would 
proceed to complete an initial business combination and offer 
redemption rights in connection therewith like a traditional SPAC.\25\
---------------------------------------------------------------------------

    \24\ See id. The proposed rule would provide that, for purposes 
of Nasdaq IM-5101-2(b), the Original SPAC must complete one or more 
business combinations with an aggregate fair market value of at 
least 80% of the aggregate amount remaining in the Retained SPAC 
Deposit Account, after the contribution to the SpinCo SPAC, at the 
time of its agreement to enter into its initial combination. Nasdaq 
further states that, similarly, a SpinCo SPAC must complete one or 
more business combinations with an aggregate fair market value of at 
least 80% of the aggregate amount remaining in the SpinCo Deposit 
Account at the time of its agreement to enter into its initial 
combination after giving effect to its contribution to any 
subsequent SpinCo SPAC.
    \25\ See id.
---------------------------------------------------------------------------

III. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2021-054 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \26\ 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.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\27\ 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, 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 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 
to protect investors and the public interest, and not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.\28\
---------------------------------------------------------------------------

    \27\ Id.
    \28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As described above, the proposal would allow a SPAC listed under 
Nasdaq IM-5101-2 to contribute a portion of the amount held in its 
deposit account to the deposit account of a SpinCo SPAC. The Exchange 
states that the proposal would permit a more efficient structure 
because a SPAC often raises an amount of capital through its IPO that 
is not optimal for the needs of a specific acquisition target.\29\ 
According to the Exchange, this has resulted in SPAC sponsors creating 
multiple SPACs of different sizes at the same time, with the intention 
to use the SPAC that is closest in size to the amount a particular 
acquisition target needs.\30\ The Exchange believes this practice 
creates the potential for conflicts of interest, fails to optimize the 
amount of capital that would benefit the SPAC's public shareholders and 
a business combination target, creates inefficiencies, and can lead to 
confusion.\31\ Accordingly, the Exchange believes the proposal would 
provide shareholders the opportunity to invest with a sponsor without 
spreading that investment across the sponsor's multiple SPACs.\32\
---------------------------------------------------------------------------

    \29\ See Notice, supra note 3, at 36841.
    \30\ See id.
    \31\ See id.
    \32\ See id. at 36842.
---------------------------------------------------------------------------

    The Commission received comments broadly supporting the proposed 
rule change. Specifically, one commenter stated that the proposed rule 
change would introduce a ``more efficient, cost-effective[,] and 
flexible'' structure than provided for by the current SPAC listing 
rules, ``while continuing to offer significant and appropriate 
protections to SPAC investors.'' \33\ This commenter further argued 
that shareholders' ability under the proposed rule change to redeem 
their investment in connection with each specific business combination 
by the Original SPAC or a SpinCo SPAC would both increase flexibility 
and

[[Page 55667]]

investors' ability to understand the companies that a SPAC plans to 
acquire and the risks associated with each such target company.\34\ 
Another commenter similarly argued that the proposed rule change would 
permit a more efficient SPAC structure while ``maintaining all of the 
investor protections'' in the current SPAC listing rules.\35\
---------------------------------------------------------------------------

    \33\ See letter from Kellen Carter, ARK Investment Management 
LLC, to Vanessa Countryman, Secretary, Commission, dated August 2, 
2021, at 1-2.
    \34\ See id. at 2.
    \35\ See letter from White & Case LLP to Vanessa Countryman, 
Secretary, Commission, dated August 3, 2021, at 1.
---------------------------------------------------------------------------

    The Commission has concerns, however, about whether the proposal is 
sufficiently designed to protect investors and the public interest, as 
required by Section 6(b)(5) of the Act. First, the Commission is 
concerned that proposed Nasdaq IM-5101-2(f) would circumvent the 
current requirements of Nasdaq IM-5101-2 that the Commission previously 
found were designed to protect investors.\36\ Specifically, Nasdaq IM-
5101-2(b) requires a SPAC to complete one or more business combinations 
having an aggregate fair market value of at least 80% of the value of 
the deposit account.\37\ This 80% requirement sets a minimum size of a 
business combination that investors will be aware of from their initial 
investment. In addition, the 80% requirement ensures that the founders 
of the SPAC will not seek a very small SPAC target solely to ensure 
they successfully complete a business combination in order to break 
escrow and thereby earn their payment (promote) for finding a target. 
The proposal could potentially allow a SPAC to engage in multiple 
business combinations that are very small in size as compared to the 
original amount in the deposit account. The proposal also does not 
include any limitations with respect to the amount a SPAC may 
contribute to a SpinCo SPAC and thereby reduce its escrow account. 
Moreover, it appears the proposed structure could potentially 
incentivize SPAC founders to complete smaller business combinations in 
cases where they cannot identify a target company of sufficient size to 
meet the 80% requirement with respect to the Original SPAC, thereby 
leaving investors with a choice of whether to accept an investment in a 
smaller-sized company than originally contemplated or a partial 
redemption of their original investment from the reduced deposit 
account. The Commission is concerned that allowing SPACs to engage in 
such transactions effectively eliminates the original 80% requirement, 
may subvert investor expectations regarding a SPAC's future business 
combination prospects, and may benefit the founders of SPACs at the 
expense of retail investors.\38\ In this regard, the Commission is 
concerned that the Exchange has not provided sufficient justification 
regarding how its proposal is consistent with the protection of 
investors, including the investor protection measures that were 
originally contemplated by Nasdaq IM-5101-2 and which the Commission 
found to be consistent with the Act.\39\
---------------------------------------------------------------------------

    \36\ See Securities Exchange Act Release No. 58228 (July 25, 
2008), 73 FR 44794 (July 31, 2008) (Order Granting Approval to 
Proposed Rule Change, as modified by Amendment No. 1, to Adopt 
Additional Initial Listing Standards to list Securities of Special 
Purpose Acquisition Companies) (NASDAQ-2008-013) (``2008 Order'').
    \37\ The deposit account must contain at least 90% of the gross 
proceeds from the SPAC's IPO and any concurrent sale by the SPAC of 
equity securities. See Nasdaq IM-5101-2(a).
    \38\ Moreover, the proposal does not appear to be limited to 
future SPACs and could potentially allow existing SPACs to engage in 
spin-offs. The Commission believes that permitting existing SPACs to 
engage in such transactions could raise investor protection issues 
given that investors who initially invested in the SPACs would not 
have been aware that the SPAC would not have to comply with the 80% 
requirement and could spin off into multiple SpinCo SPACs.
    \39\ See 2008 Order, supra note 28. In addition, the proposal 
appears to require redeeming shareholders to effectively pay 
deferred underwriting fees by deducting those fees from the 
aggregate redemption amount available to shareholders. See proposed 
Nasdaq IM-5101-2(f)(vi). This is not required for the Original SPAC 
as set forth under current Nasdaq IM-5101-2(d) and (e) and would 
result in the redeeming shareholders potentially receiving less than 
90% of the gross proceeds from the deposit account. Under the 
current SPAC listing rules, only taxes payable and amounts 
distributed to management for working capital purposes can be 
excluded from the aggregate amount in the deposit account.
---------------------------------------------------------------------------

    Furthermore, the Commission believes the proposal could introduce 
additional complexity to SPAC securities, particularly for retail 
investors. While the market in SPAC securities is already complex, the 
Exchange's proposal would allow for the listing of SPACs that may spin-
off into smaller and smaller SPACs, each presenting additional risks 
and considerations to investors that may not be fully realized at the 
time of the Original SPAC's IPO or at the time of each spin-off 
transaction when investors have the opportunity to receive shares in 
the SpinCo SPAC or redeem their pro-rata portion of the SpinCo SPAC 
Contribution.\40\ Further, although the Exchange states the proposal is 
expected to allow a SPAC that determines that it will have excess cash 
following its initial business combination to spin-off those funds to a 
new SPAC,\41\ the proposal is not limited to this particular situation 
and would allow a SPAC to break escrow to create new SpinCo SPACs at 
any time after its IPO, regardless of whether any potential business 
combination has been identified.\42\ Moreover, under current SPAC 
rules, investors have to make one determination on whether to redeem 
their shares or retain ownership in the combined operating business 
after a business combination that has an aggregate fair market value of 
at least 80% of the value of the deposit account. In contrast, under 
the proposal, investors would have to make multiple decisions on 
whether to hold or redeem their securities in potentially multiple 
SpinCo SPACs, and those investors that choose to redeem may not be made 
whole as to their original investment until a subsequent business 
combination of the Original SPAC and/or the SpinCo SPACs occur. 
Additionally, the proposal raises concerns about whether investors are 
adequately protected when only the sponsors, not shareholders, are 
participating in the decision to reduce the deposit account and 
contribute those funds to the SpinCo SPAC.\43\ For these reasons, the 
Commission is concerned that investors may not have adequate 
information at the time they initially invest in the Original SPAC and 
at the time they are required to make decisions regarding whether to 
invest in the SpinCo SPACs or to redeem their investment, which can 
occur multiple times over the term of the Original SPAC, raising 
investor protection concerns under Section 6(b)(5) of the Act.
---------------------------------------------------------------------------

    \40\ For example, under the proposal it would be difficult for 
an investor to know at the time of its investment in the Original 
SPAC (or at the time of each contribution) whether there will be 
future contributions to SpinCos, and, if so, how much the original 
escrow will be reduced and how much will be left for the Original 
SPAC's business combination. The Commission believes such 
information would be important to investors in making informed 
investment decisions in the Original SPAC.
    \41\ See Notice, supra note 3, at 36841-42.
    \42\ The proposal also does not include any timing limitations 
with respect to when a SPAC may engage in a contribution and spin-
off. As such, it appears that a contribution and spin-off could 
occur very close to the end of the 36-month period within which the 
Original SPAC and any SpinCo SPAC has to complete its business 
combination. This raises investor protection issues since 
shareholders may not have enough time to review disclosures before a 
vote or redemption decision is required.
    \43\ In these situations, the SpinCo SPAC may be structured 
completely differently than was disclosed at the time of the 
investment in the Original SPAC. For example, nothing in the 
proposal prevents the SpinCo SPAC from having a different target 
industry or business than the Original SPAC, different compensation 
arrangements than the Original SPAC, or different terms than 
disclosed in the Original SPAC registration statement.
---------------------------------------------------------------------------

    The Commission is also concerned that certain aspects of the 
proposed rule change are vague and unclear and may raise additional 
investor protection

[[Page 55668]]

concerns. For example, proposed Nasdaq IM-5101-2(f)(i) would provide 
shareholders the right to redeem, ``through one or more corporate 
transactions,'' their pro rata portion of the SPAC's contribution to a 
SpinCo SPAC's deposit account. In addition, proposed Nasdaq IM-5101-
2(f)(vi) provides that public shareholders will have the ability to 
convert or redeem shares, or receive amounts upon liquidation, for the 
full amount of the deposit account ``through one or more 
opportunities.'' The proposal, however, does not set forth any specific 
requirements applicable to the redemption or conversion opportunities 
with respect to the contribution to a SpinCo SPAC or specify what would 
qualify as an acceptable corporate transaction for purposes of a 
redemption.\44\ Moreover, the proposed rule states that a SPAC will be 
permitted to contribute a portion of the amount held in the deposit 
account to a deposit account of ``another entity'' in a spin-off ``or 
similar corporate transaction.'' However, the proposal does not specify 
whether there are any limitations on the types of entities that may 
receive the contribution, including whether such entities could include 
an already existing SPAC, or what would constitute a ``similar 
transaction.'' The Commission is concerned that the lack of clarity and 
vagueness in the proposed rule text may cause confusion amongst market 
participants regarding the scope of the proposal and what is required 
under the proposed rules.
---------------------------------------------------------------------------

    \44\ The Exchange states that a redemption could occur, for 
example, through a partial cash tender offer for shares of the 
Original SPAC pursuant to Rule 13e-4 and Regulation 14E of the Act, 
and the redemption may be of a separate class of shares distributed 
to unitholders of the Original SPAC for the purpose of facilitating 
the redemption. See Notice, supra note 3, at 36842 n.4. On the other 
hand, Nasdaq IM-5101-2 currently includes very specific requirements 
relating to redemption rights of public shareholders with respect to 
a business combination. See Nasdaq IM-5101-2(d)-(e).
---------------------------------------------------------------------------

    In addition, the Exchange has proposed that the conditions 
described in proposed Nasdaq IM-5101-2(f) shall apply to successive 
spin-offs or similar corporate transactions, ``mutatis mutandis.'' The 
Exchange provides no specificity or detail as to what this means or 
what factors the Exchange would consider when determining how to apply 
the proposed rule to successive spin-offs or similar corporate 
transactions. As drafted, the rule text would appear to give the 
Exchange broad discretion to apply the proposed rule in a different 
manner with respect to successive spin-offs or transactions to 
different SPAC issuers. It is also difficult for the Commission to 
assess whether the proposal is consistent with Section 6(b)(5) of the 
Act if the Exchange could simply change how the rule applies to fit a 
particular transaction by invoking its discretion through the proposed 
``mutatis mutandis'' language. The Commission believes this lack of 
transparency and objectivity in the proposed rule raises investor 
protection and unfair discrimination concerns under the Act because 
market participants may be confused about what is permitted under the 
rules and the Exchange may elect to apply its rules in an inconsistent 
and discriminatory manner.
    Accordingly, the Commission believes there are questions as to 
whether the proposal is consistent with Section 6(b)(5) of the Act and 
its requirements, among other things, that the rules of a national 
securities exchange be designed to protect investors and the public 
interest, and not be designed to permit unfair discrimination.
    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 that proposed the rule change.'' \45\ 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,\46\ and any failure of a self-
regulatory organization 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.\47\
---------------------------------------------------------------------------

    \45\ 17 CFR 201.700(b)(3).
    \46\ See id.
    \47\ See id.
---------------------------------------------------------------------------

    For these reasons, the Commission believes it is appropriate to 
institute proceedings pursuant to Section 19(b)(2)(B) of the Act \48\ 
to determine whether the proposal should be approved or disapproved.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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) \49\ of the Act 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 under 
the Act,\50\ any request for an opportunity to make an oral 
presentation.\51\
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78f(b)(5).
    \50\ 17 CFR 240.19b-4.
    \51\ 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).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by October 27, 2021. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
November 10, 2021. 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,\52\ in addition to any other 
comments they may wish to submit about the proposed rule change.
---------------------------------------------------------------------------

    \52\ See supra note 3.
---------------------------------------------------------------------------

    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-NASDAQ-2021-054 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-NASDAQ-2021-054. 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

[[Page 55669]]

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-NASDAQ-2021-054 and should be submitted 
by October 27, 2021. Rebuttal comments should be submitted by November 
10, 2021.
---------------------------------------------------------------------------

    \53\ 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\53\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21770 Filed 10-5-21; 8:45 am]
BILLING CODE 8011-01-P


