Document ID: SEC-2021-0960-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2021-07-13T04:00Z

[Federal Register Volume 86, Number 131 (Tuesday, July 13, 2021)]
[Notices]
[Pages 36841-36843]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-14799]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92344; File No. SR-NASDAQ-2021-054]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Modify Listing Rule 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

July 7, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 24, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify Listing Rule IM-5101-2 to permit a 
SPAC to contribute a portion of the amount held in its deposit account 
to a deposit account of a new SPAC and spin off the new SPAC to its 
shareholders.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    Nasdaq proposes to modify IM-5101-2 to allow an acquisition company 
listed under that rule to contribute a portion of the amount held in 
its deposit account to a deposit account of a new acquisition company 
and spin off the new acquisition company to its shareholders in certain 
situations where the new acquisition company will be subject to all of 
the same requirements as the original acquisition company.
    Generally, Nasdaq 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. In 2008, Nasdaq adopted a rule to 
allow such companies to list if they meet all applicable initial 
listing requirements, as well as additional conditions designed to 
provide investor protections to address specific concerns about the 
structure of such companies (``acquisition companies'' or 
``SPACs'').\3\ These additional conditions generally require, among 
other things, that at least 90% of the gross proceeds from the initial 
public offering must be deposited in a ``deposit account,'' as that 
term is defined in the rule, and that the SPAC complete within 36 
months, or a shorter period identified by the SPAC, one or more 
business combinations having an aggregate fair market value of at least 
80% of the value of the deposit account at the time of the agreement to 
enter into the initial combination.
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    \3\ IM-5101-2. See Securities Exchange Act Release No. 58228 
(July 25, 2008), 73 FR 44794 (July 31, 2008) (adopting the 
predecessor to IM-5101-2).
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    When a SPAC conducts its initial public offering, it raises the 
amount of capital that it estimates will be necessary to finance a 
subsequent business combination with its ultimate target. However, 
because a SPAC cannot identify or select a specific business 
combination target at the time of its IPO, it often turns out that the 
amount raised is not optimal for the needs of a specific target. This 
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. This practice creates the potential for 
conflicts between the multiple SPACs (each of which has different 
shareholders) and still fails to optimize the amount of capital that 
would benefit the SPAC's public shareholders and a business combination 
target. Moreover, this creates the need for repetitive action 
throughout the ecosystem, including the filing and SEC review of 
multiple registration statements and periodic reports, formation of 
multiple boards of directors, multiple audits and multiple company 
listings. This practice also can lead to confusion amongst investors.
    Accordingly, Nasdaq proposes to modify IM-5101-2 to permit a more 
efficient structure whereby an acquisition company can raise in its 
initial public offering 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 new SPAC (the 
``SpinCo SPAC''), and spinning off this SpinCo SPAC to its 
shareholders. The SpinCo SPAC will be subject to all the provisions of 
IM-5101-2 in the same manner, and subject to the same timeframes, as 
the original SPAC.
    It is expected that the new structure will be implemented in the 
following manner. If the listed SPAC (the ``Original SPAC'') determines 
that it will not need all of the cash in its deposit account for its 
initial business combination, it will designate the excess cash for a 
new deposit account held by a new SPAC, the SpinCo SPAC (such

[[Page 36842]]

amount, the ``SpinCo Deposit Account,'' and the amount retained in the 
deposit account of the Original SPAC, the ``Retained SPAC Deposit 
Account''), which will be spun off to the Original SPAC's shareholders 
as described below. Until the spin-off described below, the amount 
designated for the SpinCo Deposit Account must continue to be held for 
the benefit of the shareholders of the Original SPAC. Following the 
spin-off, the SpinCo Deposit Account will be subject to the same 
requirements as the deposit account of the Original SPAC.
    The SpinCo SPAC will file a registration statement under the 
Securities Act of 1933 for purposes of effecting the spin-off of the 
SpinCo SPAC. Prior to the effectiveness of the registration statement, 
the Original SPAC will 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'').\4\
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    \4\ This 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 Securities Exchange Act of 1934, 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.
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    After completing the tender offer and effectiveness of the SpinCo 
SPAC's registration statement, the Original SPAC will 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 will 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.
    The Original SPAC will then continue to operate as a SPAC until it 
completes its business combination and will offer redemption rights to 
its public shareholders in connection with that business combination in 
the same manner as a traditional SPAC. The SpinCo SPAC will operate in 
the same manner as a traditional SPAC, except that it could effect a 
spin-off prior to its business combination like the Original SPAC. If 
it does not elect to effect a spin-off, the SpinCo SPAC will proceed to 
complete an initial business combination and offer redemption rights in 
connection therewith like a traditional SPAC.
    Nasdaq proposes adopting a new subsection at IM-5101-2(f) which 
will specifically permit this type of transaction by allowing the 
Original SPAC to contribute a portion of the amount held in the deposit 
account to the deposit account of SpinCo SPAC in a spin-off or similar 
corporate transaction where all of the conditions described below are 
satisfied:
    (i) The public shareholders of the Original SPAC receive a pro rata 
interest in the SpinCo SPAC, except to the extent that they have 
elected to redeem a portion of their shares of the Original SPAC in 
lieu of being entitled to receive shares or units in the SpinCo SPAC;
    (ii) public shareholders must have the right to convert or redeem 
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) before the 
first business combination, with part of such conversion or redemption 
able to be fulfilled through a redemption (including by means of a 
tender offer) in lieu of being entitled to receive shares or units in 
the spin-off of a SpinCo SPAC;
    (iii) the amount distributed to the SpinCo SPAC must remain in the 
SpinCo Deposit Account for the benefit of the shareholders of the 
SpinCo SPAC in the same manner applicable to the Original SPAC as 
described in IM-5101-2(a);
    (iv) the SpinCo SPAC must meet all applicable initial listing 
requirements, as well as the conditions described in IM-5101-2(a) 
through (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 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 
Original SPAC's IPO registration statement; and
    (vi) in the aggregate, through one or more opportunities by the 
Original 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 Original SPAC as described in IM-5101-2(a) (excluding any deferred 
underwriters fees and taxes payable on the income earned on the deposit 
account).
    Proposed IM-5101-2(f) would further provide that, for purposes of 
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 at the 
time of its agreement to enter into its initial combination. 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 a subsequent SpinCo SPAC, if any.
    In addition, proposed IM-5101-2(f) would provide that, for purposes 
of IM-5101-2(d) and (e), the right to convert and opportunity to redeem 
shares of common stock on a pro rata basis, respectively, will, in the 
case of the Original SPAC, be deemed to apply to the aggregate amount 
remaining in the Retained SPAC Deposit Account, and, in the case of the 
SpinCo SPAC, be deemed to apply to the aggregate amount in the SpinCo 
Deposit Account. Under IM-5101-2(c), a majority of the Original SPAC's 
independent directors must approve its business combination and a 
majority of the independent directors of the SpinCo SPAC must approve 
the SpinCo SPAC's business combination.
    In this manner, the structure allows 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 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. All other protections contained 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. Moreover, the proposed structure would also provide 
shareholders the opportunity to invest with a sponsor without spreading 
that investment across the sponsor's multiple SPACs.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\6\ in particular, in that it is designed 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, 
by

[[Page 36843]]

establishing the means through which a SPAC can complete more than one 
business combination resulting in separate operating companies.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Commission has previously concluded that listing an acquisition 
company that satisfies the requirements of Nasdaq IM-5101-2 is 
consistent with the investor protection goals of the Exchange Act.\7\ 
The proposed rule change will extend these important investor 
protections to a new structure that addresses inefficiencies and 
potential conflicts of interest in the SPAC market. Specifically, as 
proposed, a SpinCo SPAC will be required to satisfy all applicable 
initial listing requirements, like any other SPAC listing on Nasdaq. In 
addition, the provisions of IM-5101-2(a) will apply to the SpinCo SPAC 
in the same manner as they apply to any other SPAC, except the deposit 
account will be contributed to the SpinCo SPAC by the Original SPAC.
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    \7\ Securities Exchange Act Release No. 58228, supra note 3.
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    The provisions of IM-5101-2(b) and IM-5101-2(d) or (e), as 
applicable, will also apply to each of the Original SPAC and the SpinCo 
SPAC in the proposed structure in the same manner as they apply to any 
other SPAC, except that the 80% test will be applied to the amount 
retained by the Original SPAC after public shareholders have had an 
initial, early redemption opportunity and the Original SPAC has 
contributed a portion of its deposit account to the SpinCo SPAC. The 
Exchange believes that this proposed difference 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. The primary 
difference is that the redemption right may be effected through two 
decisions, one of which is accelerated to allow an earlier redemption 
than would be available to the public shareholders of a traditional 
SPAC and the other will come at the time of the business combination, 
just as in a traditional SPAC.
    As with the existing rules, each business combination must be 
approved by the SPAC's independent directors, as required by IM-5101-
2(c), and following each business combination, the combined company 
must satisfy all initial listing requirements, as required by IM-5101-
2(d) or (e), respectively.
    Accordingly, in this manner, the Exchange believes that the 
proposed rule change satisfies the requirements of Section 6(b)(5) of 
the Act in that it is designed 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.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule would be 
available in a non-discriminatory way to any company satisfying its 
requirements, as well as all other applicable Nasdaq listing 
requirements. In addition, Nasdaq faces competition for listings but 
the proposed rule change does not impose any burden on the competition 
with other exchanges; any competing exchange could similarly adopt 
rules to allow listing SPACs using such a structure.

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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to 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 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 
on or before August 3, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-14799 Filed 7-12-21; 8:45 am]
BILLING CODE 8011-01-P