[Federal Register Volume 87, Number 50 (Tuesday, March 15, 2022)]
[Notices]
[Pages 14592-14596]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-05369]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94389; File No. SR-NASDAQ-2021-054]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Disapproving 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

March 9, 2022.

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\
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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. 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.
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    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\ On September 30, 2021, the Commission instituted proceedings 
under Section 19(b)(2)(B) of the Act \6\ to determine whether to 
approve or disapprove the proposed rule change.\7\ On January 3, 2022, 
the Commission extended the period for consideration of the proposed 
rule change to March 10, 2022.\8\
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    \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).
    \7\ See Securities Exchange Act Release No. 93219, 86 FR 55664 
(October 6, 2021) (``OIP'').
    \8\ See Securities Exchange Act Release No. 93891, 87 FR 998 
(January 7, 2022).

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[[Page 14593]]

    This order disapproves the proposed rule change because, as 
discussed below, the Exchange has not met its burden under the Act and 
the Commission's Rules of Practice to demonstrate that its proposal is 
consistent with the requirements of Exchange Act Section 6(b)(5), and, 
in particular, the requirements 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, and to 
protect investors and the public interest, and not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.\9\
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    \9\ 15 U.S.C. 78f(b)(5).
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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 business plan is to engage in a merger or 
acquisition with an unidentified company or companies.\10\ 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.\11\ 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'').\12\ 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.\13\ Nasdaq IM-5101-2 further requires each business 
combination to be approved by a majority of the Acquisition Company's 
independent directors.\14\ 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.\15\ 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.\16\
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    \10\ See Nasdaq IM-5101-2.
    \11\ See id.
    \12\ See Nasdaq IM-5101-2(a).
    \13\ See Nasdaq IM-5101-2(b).
    \14\ See Nasdaq IM-5101-2(c).
    \15\ See Nasdaq IM-5101-2(d).
    \16\ See Nasdaq IM-5101-2(e).
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    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.\17\ 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.\18\
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    \17\ 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.
    \18\ 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.
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    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,\19\ 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,\20\ and (B) for 
purposes of

[[Page 14594]]

Nasdaq IM-5101-2(d) and (e),\21\ 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;
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    \19\ See supra note 13 and accompanying text, for a description 
of the requirements of Nasdaq IM-5101-2(b).
    \20\ 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.
    \21\ See supra notes 15-16 and accompanying text, for a 
description of the requirements of Nasdaq IM-5101-2(d) and (e).
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    (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 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).\22\
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    \22\ 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'').\23\ 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.\24\
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    \23\ See Notice, supra note 3, at 36841-42.
    \24\ See id. at 36842.
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    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'').\25\ 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.\26\
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    \25\ 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.
    \26\ See id. at 36842.
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    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.\27\ 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.\28\
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    \27\ 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.
    \28\ See id.
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    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.'' \29\ 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 investors' ability to understand the companies that a SPAC plans to 
acquire and the risks associated with each such target company.\30\ 
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.\31\
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    \29\ See letter from Kellen Carter, ARK Investment Management 
LLC, to Vanessa Countryman, Secretary, Commission, dated August 2, 
2021, at 1-2.
    \30\ See id. at 2.
    \31\ See letter from White & Case LLP to Vanessa Countryman, 
Secretary, Commission, dated August 3, 2021, at 1.
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III. Discussion and Commission Findings

    The Commission must consider whether the Exchange's proposal is 
consistent with the Act, including Section 6(b)(5), 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 protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.\32\ 
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.'' \33\
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    \32\ 15 U.S.C. 78f(b)(5). Pursuant to Section 19(b)(2) of the 
Exchange Act, 15 U.S.C. 78s(b)(2), the Commission must disapprove a 
proposed rule change filed by a national securities exchange if it 
does not find that the proposed rule change is consistent with the 
applicable requirements of the Exchange Act.
    \33\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
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    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,\34\ 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

[[Page 14595]]

change is consistent with the Act and the applicable rules and 
regulations.\35\ Moreover, ``unquestioning reliance'' on a self-
regulatory organization's representations in a proposed rule change is 
not sufficient to justify Commission approval of a proposed rule 
change.\36\
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    \34\ See id.
    \35\ See id.
    \36\ Susquehanna Int'l Group, LLP v. Securities and Exchange 
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017).
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    The Commission has consistently recognized the importance of 
national securities exchange listing standards. Among other things, 
such listing standards help ensure that exchange-listed companies will 
have sufficient public float, investor base, and trading interest to 
provide the depth and liquidity necessary to promote fair and orderly 
markets.\37\ With respect to SPACs, Nasdaq's current listing standards 
provide important investor protections,\38\ including that at least 90% 
of the SPAC's IPO proceeds be held in a deposit account; \39\ that 
within 36 months of the effectiveness of its IPO registration statement 
(or such shorter time period specified in the registration statement) 
the SPAC complete one or more business combinations having an aggregate 
fair market value of at least 80% of the value of the deposit account; 
\40\ and that public shareholders have a right to redeem their pro rata 
share of the full amount of the deposit account prior to any proposed 
business combination.\41\
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    \37\ The Commission has stated in approving national securities 
exchange listing requirements that the development and enforcement 
of adequate standards governing the listing of securities on an 
exchange is an activity of critical importance to the financial 
markets and the investing public. In addition, once a security has 
been approved for initial listing, maintenance criteria allow an 
exchange to monitor the status and trading characteristics of that 
issue to ensure that it continues to meet the exchange's standards 
for market depth and liquidity so that fair and orderly markets can 
be maintained. See, e.g., Securities Exchange Act Release Nos. 91947 
(May 19, 2021), 86 FR 28169, 28172 n.47 (May 25, 2021) (SR-NASDAQ-
2020-057) (``Nasdaq 2021 Order''); 90768 (December 22, 2020), 85 FR 
85807, 85811 n.55 (December 29, 2020) (SR-NYSE-2019-67) (``NYSE 2020 
Order''); 82627 (February 2, 2018), 83 FR 5650, 5653 n.53 (February 
8, 2018) (SR-NYSE-2017-30) (``NYSE 2018 Order''); 81856 (October 11, 
2017), 82 FR 48296, 48298 (October 17, 2017) (SR-NYSE-2017-31); 
81079 (July 5, 2017), 82 FR 32022, 32023 (July 11, 2017) (SR-NYSE-
2017-11). The Commission has stated that adequate listing standards, 
by promoting fair and orderly markets, are consistent with Section 
6(b)(5) of the Exchange Act, in that they are, among other things, 
designed to prevent fraudulent and manipulative acts and practices, 
promote just and equitable principles of trade, and protect 
investors and the public interest. See, e.g., Nasdaq 2021 Order, 86 
FR at 28172 n.47; NYSE 2020 Order, 85 FR at 85811 n.55; NYSE 2018 
Order, 83 FR at 5653 n.53; Securities Exchange Act Release Nos. 
87648 (December 3, 2019), 84 FR 67308, 67314 n.42 (December 9, 2019) 
(SR-NASDAQ-2019-059); 88716 (April 21, 2020), 85 FR 23393, 23395 
n.22 (April 27, 2020) (SR-NASDAQ-2020-001).
    \38\ See Securities Exchange Act Release No. 58228 (July 25, 
2008), 73 FR 44794, 44796 (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'').
    \39\ See Nasdaq IM-5101-2(a).
    \40\ See Nasdaq IM-5101-2(b).
    \41\ See Nasdaq IM-5101-2(d). See also supra notes 12-16 and 
accompanying text.
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    As discussed above, Nasdaq now proposes to amend its listing 
standards to allow the SPAC to contribute a portion of the funds held 
in its deposit account to the deposit account of a new SpinCo SPAC, 
rather than use those funds for a business combination with the 
Original SPAC. While Nasdaq would provide shareholders in the original 
SPAC redemption rights with respect to the funds contributed to the 
SpinCo SPAC, such rights would not extend to the funds retained by the 
Original SPAC. Instead, shareholders would be required to make a 
separate, later redemption decision with respect to the remaining funds 
in the Original SPAC's deposit account in connection with its business 
combination, once one is identified. Because Nasdaq proposes to permit 
successive SpinCo SPACs, shareholders could be required to evaluate 
multiple potential spin-offs and business combinations, and engage in 
multiple redemption processes if they desire to redeem their pro rata 
share of the full amount originally deposited in the SPAC's deposit 
account.
    In support of its proposal, Nasdaq acknowledges this difference, 
but states its belief that it ``does not adversely affect shareholders 
because the shareholders will still have the opportunity to redeem for 
the entire pro rata share of the trust account prior to completion of 
the business combination,'' although ``the redemption right may be 
effected through two decisions.'' \42\
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    \42\ See Notice, supra note 3, at 36843. Nasdaq also states that 
the proposal would provide public shareholders an additional, early 
redemption opportunity with respect to a portion of their holdings, 
before the time they would be able to do so in a traditional SPAC, 
and that public shareholders would maintain the ability to redeem 
the portion of their investment attributable to each specific 
acquisition after reviewing all disclosure with respect to that 
acquisition. See id. at 36842. Nasdaq further states that all other 
protections provided under IM-5101-2 would continue to apply, with 
adjustments only to reflect the potential for a spin-off of a new 
SPAC that is subject to all of the requirements of IM-5101-2, and 
any SpinCo SPAC would be required to satisfy all applicable initial 
listing requirements, like any other SPAC listing on Nasdaq. See id. 
at 36842-43. Nasdaq argues that the proposal would provide 
shareholders the opportunity to invest with a SPAC sponsor without 
spreading that investment across the sponsor's multiple SPACs. See 
id. at 36842.
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    Current SPAC listing standards provide important protections for 
investors in SPACs, where the business plan is to engage in mergers or 
acquisitions with unidentified companies. As discussed above, Nasdaq's 
current SPAC listing standards require that SPAC IPO proceeds be held 
in a deposit account to be used for business combination purposes, and 
provide shareholders an efficient mechanism to redeem their entire pro 
rata share of those proceeds in a single transaction. This permits 
investors who do not support a business combination or otherwise lose 
faith in the abilities of the SPAC sponsors to fully redeem their pro 
rata share of the proceeds when a business combination is first 
presented to them. Under the Exchange's proposal, shareholders would 
lose this ability, and instead would have to wait until business 
combinations are presented by all successive SpinCo SPACs to fully 
redeem their pro rata share of the proceeds. By proposing to permit 
funds in the deposit account to be used to create new SPACs and to 
require shareholders to engage in a series of redemption processes in 
order to fully redeem their pro rata share of the funds originally 
deposited in the trust account, the efficiency of shareholder 
redemption rights and the effectiveness of the investor protections 
they were designed to provide could be undermined.
    Further, by proposing to permit successive SpinCo SPACs, 
shareholders could be required to make assessments of a series of 
proposed business combinations of varying sizes as a result of their 
investment in the Original SPAC, rather than doing so once. As 
discussed above, SPACs are subject to heightened listing standards 
because of the special risks presented by an investment in a company 
where the business plan is to engage in a merger or acquisition of an 
unidentified company, and to ensure that appropriate investor 
protections are in place.\43\ By

[[Page 14596]]

increasing the number of decisions with respect to unidentified 
companies that SPAC investors would be required to make, and determine 
whether or not to exercise redemption rights, the Exchange's proposal 
could add considerable complexity to the structure and business 
combination strategies of SPACs, and exacerbate the investor protection 
concerns presented by companies where the business plan is to combine 
with another company that is unidentified at the time of 
investment.\44\
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    \43\ In approving Nasdaq's original listing standards for SPACs, 
the Commission found that the investor protection requirements in 
IM-5101-2, including that at least 90% of the IPO proceeds and any 
concurrent sale be placed in a deposit account and that the public 
shareholders have conversion rights based on their share of the 
proceeds in that deposit account, provide additional safeguards for 
investors who invest in SPAC securities, and will help ensure that 
public shareholders who disagree with management's decision with 
respect to a business combination have adequate remedies. See 2008 
Order, supra note 38, at 44796. The Commission further stated that 
those safeguards should help to ensure that SPACs that list 
securities on Nasdaq will have taken certain additional steps to 
address investor protection and other matters and that the rules 
provided baseline investor protections. See id. at 44796-97. The 
Commission has subsequently stated that ``[b]ecause of their unique 
structure, and the fact that at the outset investors will not know 
the ultimate business of the company similar to a blank check 
company, the Commission approved Nasdaq listing standards for SPACs 
that were similar in some respects to the investor protection 
measures contained in Rule 419 under the Securities Act of 1933.'' 
Securities Exchange Act Release No. 63607 (December 23, 2010), 75 FR 
82420, 82422 (December 30, 2010) (order approving SR-NASDAQ-2010-
137).
    \44\ See supra note 43 (describing how Nasdaq's listing 
standards for SPACs are designed to address additional investor 
protection concerns presented by SPAC issuers given their unique 
structure). See also Securities Exchange Act Release No. 57785 (May 
6, 2008), 73 FR 27597, 27599 (May 13, 2008) (SR-NYSE-2008-17) 
(approving listing standards for SPACs on NYSE and stating that 
SPACs are ``essentially shell companies'' and that the additional 
investor protection criteria on NYSE, which are comparable to those 
in IM-5101-2, ``should further the ability of investors to protect 
and monitor their investment pending a [b]usiness [c]ombination'').
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    Nasdaq has not addressed these risks or how its proposal is 
consistent with Section 6(b)(5) of the Exchange Act in light of them, 
other than to state that shareholders will not be adversely affected 
because they still have the right to redeem their full pro rata share 
of the deposit account through more than one transaction.\45\ Based on 
the above, the Commission cannot find that the proposal is consistent 
with the requirement under Section 6(b)(5) of the Act that the proposal 
be designed, among other things, to protect investors and the public 
interest.
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    \45\ See Notice, supra note 3, at 36843; proposed IM-5101-
2(f)(vi).
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    As stated above, 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.'' 
\46\ For the foregoing reasons, the Exchange has not met its burden to 
demonstrate that its proposal is consistent with the Exchange Act. In 
particular, the Exchange has not adequately demonstrated that its 
proposal to allow a SPAC to contribute a portion of the amount held in 
its deposit account to the deposit account of a new SpinCo SPAC is 
consistent with investor protection, the public interest, and other 
relevant provisions of Section 6(b)(5) of the Exchange Act. 
Accordingly, for the reasons set forth above, the Commission must 
disapprove the proposed rule change because the Exchange has not met 
its burden to demonstrate that the proposal is consistent with Section 
6(b)(5) of the Exchange Act.\47\
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    \46\ 17 CFR 201.700(b)(3).
    \47\ In disapproving this proposed rule change, the Commission 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f). As 
described above, two commenters expressed their belief that the 
proposal would result in a more efficient SPAC structure and use of 
capital. See supra notes 29-31 and accompanying text. For the 
reasons discussed throughout, however, the Commission is 
disapproving the proposed rule change because it does not find that 
the proposed rule change is consistent with the Exchange Act.
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IV. Conclusion

    The Commission does not find, pursuant to Section 19(b)(2) of the 
Exchange Act,\48\ that the proposed rule change is consistent with the 
Exchange Act and the rules and regulations thereunder applicable to a 
national securities exchange, and in particular, Section 6(b)(5) of the 
Exchange Act.
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    \48\ 15 U.S.C. 78s(b)(2).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\49\ that the proposed rule change (SR-NASDAQ-2021-054) 
be, and hereby is, disapproved.
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    \49\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\50\
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    \50\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-05369 Filed 3-14-22; 8:45 am]
BILLING CODE 8011-01-P


