Document ID: SEC-2018-1620-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2018-10-18T04:00Z

[Federal Register Volume 83, Number 202 (Thursday, October 18, 2018)]
[Notices]
[Pages 52854-52857]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22682]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84420; File No. SR-NYSE-2018-46]

Self-Regulatory Organizations; New York Stock Exchange LLC; 

Notice of Filing of Proposed Rule Change To Amend the Listed Company 

Manual for Acquisition Companies To Reduce the Continued Listing 

Standards for Public Holders From 300 to 100 and To Enable the Exchange 

To Exercise Discretion To Allow Acquisition Companies a Reasonable Time 

Period Following a Business Combination To Demonstrate Compliance With 

the Applicable Quantitative Listing Standards

October 12, 2018.

    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 

1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 

that, on October 1, 2018, New York Stock Exchange LLC (``NYSE'' or 

``Exchange'') filed with the Securities and Exchange Commission 

``Commission'') the proposed rule change as described in Items I, II, 

and III below, which Items have been prepared by the self-regulatory 

organization. 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\ 15 U.S.C. 78a.

    \3\ 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 proposes to amend the Listed Company 

Manual (the

[[Page 52855]]

``Manual'') to revise its continued listing standards for Acquisition 

Companies..[sic] The proposed rule change is available on the 

Exchange's website at www.nyse.com, 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 self-regulatory organization 

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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule Change

1. Purpose

    Section 102.06 of the Manual sets forth initial listing 

requirements applicable to a company whose business plan is to complete 

an initial public offering and engage in a merger or acquisition with 

one or more unidentified companies within a specific period of time (an 

``Acquisition Company'' or ``AC'').\4\ Section 102.06 requires, in 

part, that an Acquisition Company: (i) Deposit into and retain in an 

escrow account at least 90% of the gross proceeds of its initial public 

offering through the date of its Business Combination; (ii) complete 

the Business Combination within 36 months of the effectiveness of the 

IPO registration statement; and (iii) provide the public shareholders 

who object to the Business Combination with the right to convert their 

common stock into a pro rata share of the funds held in escrow.\5\ 

Following the Business Combination, the combined company must meet the 

Exchange's requirements for initial listing.

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    \4\ Section 102.06 provides that an 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 

(the ``Business Combination'') within 36 months of the effectiveness 

of its IPO registration statement.

    \5\ Section 102.06 also requires that each proposed business 

combination be approved by a majority of the company's independent 

directors.

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    Section 802.01B of the Manual sets forth the continued listing 

standards for ACs. The Exchange proposes to change its initial and 

continued listing standards for Acquisition Companies as follows:

     Reduce the 300 total [sic] holders continued listing 

requirement to 100 total [sic] holders.

     Amend the rule text in Section 802.01B to enable the 

Exchange to exercise discretion to allow companies a reasonable period 

of time following the Business Combination to demonstrate compliance 

with all applicable quantitative listing standards.

Proposal To Reduce Continued Listing Requirement With Respect to Number 

of Holders

    Acquisition Companies often have difficulty demonstrating 

compliance with the 300 total [sic] shareholder requirement for 

continued listing. The shareholder requirement is designed to help 

ensure that a security has a sufficient number of investors to provide 

a liquid trading market.\6\ Based on conversations with marketplace 

participants, including the sponsors of Acquisition Companies and 

lawyers and bankers that advise these companies, the Exchange believes 

that the difficulties Acquisition Companies have in demonstrating 

compliance with the shareholder requirement are due to intrinsic 

features of Acquisition Companies, which limit the number of retail 

investors interested in the vehicle and encourage owners to hold their 

shares until a transaction is announced, which can be as long as three 

years after the initial public offering. These same intrinsic features 

of Acquisition Companies also limit the benefit to investors of a 

shareholder requirement.

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    \6\ See, e.g., Rocky Mountain Power Company, Securities Exchange 

Act Release No, 40648 (November 9, 1998) (text at footnote 11).

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    In addition, because the price of an Acquisition Company is based 

primarily on the value of the funds it holds in trust, and the 

Acquisition Company's shareholders have the right to redeem their 

shares for a pro rata share of that trust in conjunction with the 

Business Combination, the impact of the number of shareholders on an 

Acquisition Company security's price is less relevant than is the case 

for operating company common stocks. For this reason, Acquisition 

Companies, historically, trade close to the value in the trust, even 

when they have had few shareholders. These trading patterns suggest 

that Acquisition Companies' low number of shareholders has not resulted 

in distorted prices.

    The Exchange believes that an Exchange Traded Fund (``ETF'') is 

somewhat similar to an Acquisition Company in this regard in that an 

arbitrage mechanism keeps the ETF's price close to the value of its 

underlying securities, even when trading in the ETF's shares is 

relatively illiquid. The initial listing requirements for ETFs do not 

include a shareholder requirement and only 50 shareholders are required 

for continued listing after the ETF has been listed for one year.

    Accordingly, given the short life of an Acquisition Company, the 

trading characteristics of Acquisition Companies, and the requirement 

to meet the initial listing standards at the time of the Business 

Combination, the Exchange proposes to reduce from 300 holders to 100 

holders the minimum total number of [sic] holders required on a 

continued listing basis for Acquisition Companies.\7\

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    \7\ The Exchange notes that any Acquisition Company listed on 

the NYSE will be allocated to a Designated Market Maker. As a 

result, the Exchange does not expect that the proposed change will 

result in illiquidity or other problems trading the securities of 

Acquisition Companies.

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Period for Company To Demonstrate That It Satisfies Initial Listing 

Requirements

    Section 802.01B of the Manual currently states that:

    After consummation of its Business Combination, a company that had 

originally listed as an AC will be subject to Section 801 and Section 

802.01 in its entirety and will be required immediately upon 

consummation of the Business Combination to meet the following 

requirements:

    (i) A price per share of at least $4.00;

    (ii) a global market capitalization of at least $150,000,000;

    (iii) an aggregate market value of publicly-held shares of at least 

$40,000,000 *; and

    (iv) the requirements with respect to shareholders and publicly-

held shares set forth in Section 102.01A for companies listing in 

connection with an initial public offering.\8\

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    \8\ The applicable requirement is 400 holders of round lots 

(i.e., 100 shares).

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    * Shares held by directors, officers, or their immediate families 

and other concentrated holding of 10 percent or more are excluded in 

calculating the number of publicly-held shares.

    Section 802.01B also provides that an Acquisition Company failing 

to meet these requirements will be promptly subject to suspension and 

delisting proceedings.

    The Exchange notes that it can be difficult for a company, once 

listed, to obtain evidence demonstrating the number of its shareholders 

because

[[Page 52856]]

many accounts are held in street name and shareholders may object to 

being identified to the company. As a result, companies must seek 

information from broker-dealers and from third-parties that distribute 

information such as proxy materials for the broker-dealers. This 

process is especially burdensome for Acquisition Companies at the time 

of their Business Combinations, because Acquisition Company 

shareholders typically have the right to request redemption of their 

securities until immediately before consummation and it is therefore 

impracticable for companies to identify the number of round-lot holders 

immediately to demonstrate their qualification for initial listing.

    The Exchange proposes to amend Section 802.01B to provide that 

``[f]ollowing consummation of its Business Combination, a company that 

had originally listed as an [Acquisition Company] will be subject to'' 

the quantitative listing standards set forth above. This change is 

consistent with rule text in Nasdaq's IM-5101-2 and is intended in 

particular to address the delays described above associated with 

obtaining information about the number of shareholders holding shares 

in ``street name'' accounts. By amending Section 802.01B, an 

Acquisition Company would not need to meet the shareholder distribution 

requirements immediately upon consummation of it Business Combination, 

but may do so at some point following closing of that transaction. The 

purpose of the proposed amendment is to allow the Exchange to exercise 

discretion to allow companies a reasonable period of time following the 

Business Combination to demonstrate compliance with the applicable 

quantitative listing standards, including the shareholders requirement. 

If the company is unable to demonstrate that it meets the applicable 

quantitative requirements after such reasonable time period, the 

Exchange would commence delisting proceedings and immediately suspend 

trading in the company's securities.

    These proposed changes will be effective upon approval of this rule 

by the Commission.

2. Statutory Basis

    The Exchange believes that the proposed rule change is consistent 

with Section 6(b) of the Exchange Act,\9\ in general, and furthers the 

objectives of Section 6(b)(5) of the Exchange Act,\10\ in particular in 

that it is designed 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, in general, to protect investors and the public 

interest and is not designed to permit unfair discrimination between 

customers, issuers, brokers, or dealers. While the change would allow 

Acquisition Companies to maintain their continued listing status with 

fewer shareholders, this proposed change is consistent with the 

investor protection provisions of the Act because other protections 

help assure that market prices will not be distorted by any potential 

resulting lack of liquidity, which is the underlying purpose of the 

shareholder requirement. In particular, the ability of a shareholder to 

redeem shares for a pro rata share of the trust helps assure that the 

Acquisition Company will trade close to the value of the assets held in 

trust.

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    \9\ 15 U.S.C. 78f(b).

    \10\ 15 U.S.C. 78f(b)(5).

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    Thus, this change will remove impediments to and perfect the 

mechanism of a free and open market by removing listing requirements 

that prohibit certain companies from remaining listed without any 

concomitant investor protection benefits.

    The proposal to allow Acquisition Companies to demonstrate that 

they meet the applicable quantitative requirements following a Business 

Combination is intended in particular to address the difficulty 

companies have in identifying the number of holders they have 

immediately upon consummation of their Business Combination. 

Acquisition Company shareholders typically have the right to request 

redemption of their securities until immediately before consummation 

and it is therefore impracticable for companies to identify the number 

of round-lot holders immediately to demonstrate their qualification for 

initial listing. This proposed change is consistent with the protection 

of investors and the public interest, as it does not alter the 

substantive quantitative requirements a company must meet to remain 

listed.

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 that is not necessary or appropriate 

in furtherance of the purposes of the Act. The purpose of the proposed 

rule is to adopt continued listing standards for Acquisition Companies 

that better reflect the characteristics and trading market for 

Acquisition Companies. While the rule may permit more Acquisition 

Companies to list, or remain listed, on the Exchange, other exchanges 

could adopt similar rules to compete for such listings. As such, the 

Exchange does not believe it imposes any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 

Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 

proposed rule change.

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 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 [email protected]. Please include 

File Number SR-NYSE-2018-46 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 

and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2018-46. This file 

number should be included on the subject line if email is used. To help 

the Commission process and review your comments more efficiently, 

please use only one method. The Commission will post all comments on 

the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 

Copies of the

[[Page 52857]]

submission, all subsequent amendments, all written statements with 

respect to the proposed rule change that are filed with the Commission, 

and all written communications relating to the proposed rule change 

between the Commission and any person, other than those that may be 

withheld from the public in accordance with the provisions of 5 U.S.C. 

552, will be available for website viewing and printing in the 

Commission's Public Reference Room, 100 F Street NE, Washington, DC 

20549 on official business days between the hours of 10:00 a.m. and 

3:00 p.m. Copies of the filing also will be available for inspection 

and copying at the principal office of the Exchange. All comments 

received will be posted without change. Persons submitting comments are 

cautioned that we do not redact or edit personal identifying 

information from comment submissions. You should submit only 

information that you wish to make available publicly. All submissions 

should refer to File Number SR-NYSE-2018-46 and should be submitted on 

or before November 8, 2018.

    For the Commission, by the Division of Trading and Markets, 

pursuant to delegated authority.\11\

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    \11\ 17 CFR 200.30-3(a)(12).

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Eduardo A. Aleman,

Assistant Secretary.

[FR Doc. 2018-22682 Filed 10-17-18; 8:45 am]

 BILLING CODE 8011-01-P