SEC Rejects NYSE Proposal and Delays Action on Nasdaq’s Latest Proposal to Tighten Certain Listing Standards
By: Carol Anne Huff, Kirkland & Ellis LLP*
Carol Anne Huff, from Kirkland & Ellis LLP, is back to give everyone a SPAC update on the latest news coming from the SEC on their ruling regarding NYSE and Nasdaq listing standards. Read below to get her take on the situation.
The SEC’s rejection of NYSE’s proposal to loosen SPAC’s listing requirements probably does not come as a surprise to those who have been following the back and forth between the exchanges and the SEC. NYSE and Nasdaq initially filed proposals in fall 2017 that would have relaxed the initial and continued listing standards applicable to SPACs and provided a 30-day grace period following a business combination to allow former SPACs to demonstrate compliance with listing standards.
After multiple extensions and delays by the SEC on these proposals, the exchanges ultimately both withdrew their proposals in June 2018. The NYSE remained determined, however, and refiled a modified proposal in October 2018. After deferring action on the revised proposal several times, the SEC rejected the proposal on June 14, indicating that it did not believe NYSE had met its burden of demonstrating that the changes were consistent with their requirements. Specifically, that the exchange’s rules be designed to prevent fraudulent practices and protect investors and the public interest. The SEC stressed that it believes liquidity requirements are “of critical importance to financial markets and the investing public and the standards ensure that exchange listed securities have sufficient public float, investor base, and trading interest to provide the depth and liquidity necessary to promote fair and orderly markets.” As a result, the NYSE’s listing standards for SPACs remain as is – 300 round lot holders.
The rejection does not come as a surprise, because, while NYSE’s proposal was pending, Nasdaq proposed new listing standards of its own in April aimed at tightening liquidity standards. Unfortunately, as previously reported, Nasdaq’s latest proposal is to tighten listing standards that would be applicable to all issuers but would likely impact the ability of some SPACs to meet the listing standards upon completing a business combination. Nasdaq’s proposed rules would exclude shares that are “restricted securities” in determining whether a company meets minimum market cap and number of publicly held shares requirements. In addition, Nasdaq also proposed the added requirement that a round lot holder have securities with a minimum value of $2,500.
As for the ruling on the Nasdaq’s proposal, we will need to stay tuned. The SEC has delayed action on the Nasdaq proposal until July 8, 2019. In this case, no news may be good news, but the SEC’s statements regarding the importance of liquidity do not bode well. Interested persons are still able to submit comments to the SEC on the proposed Nasdaq requirements.
*Carol Anne Huff is a corporate partner at Kirkland & Ellis LLP who regularly advises on transactions involving special purpose acquisition companies.