DealLawyers.com Blog

Yesterday, the SEC posted this notice and request for comment for a proposed change to Nasdaq’s rules applicable to initial listings in connection with de-SPAC transactions involving OTC trading SPACs. The change would align the treatment of OTC trading SPACs with similarly situated exchange-listed SPACs.

– Nasdaq is proposing to modify the definition of a “Reverse Merger” in Listing Rule 5005(a)(39) to exclude the security of a special purpose acquisition company, as that term is defined in Item 1601(b) of Regulation S-K (“SPAC”) that is listing in connection with a de-SPAC transaction, as that term is defined in Item 1601(a) of Regulation S-K (“de-SPAC transaction”), upon effectiveness of a 1933 Securities Act registration statement (“Registration Statement”).

A company formed by reverse merger is eligible for initial listing only if it satisfies additional initial listing conditions, including that, immediately before the filing of the application, the combined entity traded for at least one year in the U.S. over-the-counter market, on another national securities exchange, or on a regulated foreign exchange and timely filed all required periodic financial reports, including at least one annual report. A company formed by the acquisition of an operating company by a “listed” SPAC is currently excluded from the definition of reverse merger — and these additional initial listing requirements. 

Nasdaq points to the new disclosure requirements applicable to de-SPAC transactions. With those changes, Nasdaq believes a company listing on Nasdaq in connection with a de-SPAC transaction at the time of effectiveness of its registration statement should be excluded from the additional reverse merger requirements.

Nasdaq also proposes to exempt listing applications in connection with business combinations involving an OTC-trading SPAC from the ADV requirement that applies to securities that traded in the OTC market prior to the application.

– Nasdaq also proposes to modify Listing Rules 5315(e)(4), 5405(a)(4), and 5505(a)(5) (the “ADV Requirement”) to exclude the security of a company listing in connection with a de-SPAC transaction, upon effectiveness of a Registration Statement, from the minimum trading volume requirement applicable to newly listing companies that previously traded in the over-the-counter (“OTC”) market.

The SEC is seeking comments on the proposal.

– Meredith Ervine