On July 8, 2024, the Nasdaq Stock Market LLC (“Nasdaq”) filed with the Securities and Exchange Commission (the “SEC”) a notice of a proposed rule change that looks to streamline the suspension and delisting processes for special purpose acquisition companies (“SPACs”) that have failed to complete a business combination with a target company (“de-SPAC transaction”) within 36 months of completing their initial public offering or who failed to meet the listing standards upon completion of a de-SPAC transaction.
Currently, SPACs that fail to complete a de-SPAC transaction within 36 months of their IPO or who fail to meet the listing standards upon completion of a de-SPAC transaction can stay or suspend the delisting of their securities from the NASDAQ for up to 180 days through a hearing panel appeal. This extra time has, in some cases, allowed these delinquent SPACs to regain compliance by either completing a business combination or satisfying the listing requirements prior to the expiration of the 180-day grace period.
The proposed Nasdaq rules would:
- limit the hearing panel’s authority to reverse a delisting determination to only those cases when there was a finding of error and the company met the listing requirements at the time of the delisting determination;
- restrict the ability of the hearing panel to evaluate facts related to a company regaining compliance after the delisting determination; and
- eliminate the 180-day grace period.
Interestingly, while Nasdaq’s proposed rules align with the current rules of the New York Stock Exchange (the “NYSE”), in April the NYSE filed with the SEC a notice of a proposed rule change that would lengthen the timeline for a de-SPAC transaction from 36 months to 42 months (provided it has entered into a definitive agreement prior to the 36-month anniversary of its IPO). The NYSE proposed rules align with the current Nasdaq rules.
Both sets of rules are currently under review at the SEC, with the Nasdaq proposal scheduled to automatically become effective as early as October 7, 2024, unless the SEC delays effectiveness (as it has with the NYSE rule) or temporarily suspends the rule change.
How these dueling rule proposals are resolved remains uncertain, but a possible outcome will be that the SEC will approve the Nasdaq Rule and the NYSE Rule will either be shelved or withdrawn. The result of that outcome will be that Nasdaq and NYSE rules will align and SPACs listed on Nasdaq will lose the grace period afforded under Nasdaq’s current listing rules.
We have seen a lot of rulemaking around SPACs and companies that have completed de-SPAC transactions over the past few years. Whether this is the final salvo aimed at these companies remains to be seen, but what is clear is that both sponsors looking to launch a SPAC or companies considering a business combination with a SPAC need to ensure they understand the new rules of the SPAC game.
For more information, the Nasdaq notice of filing a proposed rule change can be found here and the NYSE notice of filing a proposed rule change can be found here. If you have any questions about the proposed rule, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets group.