(BFM Bourse) – The SEC has proposed to tighten the regulations applying to SPACs in order to bring the requirements in terms of disclosure of information closer to those that apply to companies presenting a classic IPO dossier.
SPACs, these “blank check” companies that have been very popular since 2019 on Wall Street to list companies with reduced formalities, will be subject to new regulations to make them more transparent, the stock market authority proposed on Wednesday. US, the Securities and Exchange Commission.
The SEC wants to “improve information disclosure and investor protection” in IPOs through Special Purpose Acquisition Company (SPAC) and in corporate reconciliation transactions involving these shell companies, says the stock market watchdog in a press release.
“I think it’s important to consider the economic engine of SPACs,” SEC Chairman Gary Gensler acknowledged as the new instrument has flourished on Wall Street in recent years, accelerating the IPO of hundreds of companies.
Majority of IPOs
In 2020 and 2021, the financial instrument was used in the majority of IPOs in the US market by names like Wework, the specialist in shared offices, or Lucid, manufacturer of electric vehicles. But “investors deserve the protections they receive from traditional IPOs, with respect to information asymmetries, fraud, and conflicts of interest,” added Gary Gensler.
A SPAC is a company with no specific activity other than the search for targets to acquire. To finance itself, the company raises funds by selling shares, then merging with an unlisted company, allowing the latter to avoid the cumbersome procedure of a traditional stock market listing and to quickly benefit from a financial windfall.
One of the peculiarities for the shareholders of the first round of funding is that they do not know in advance with which company the SPAC will associate, hence the nickname of “blank check” companies.
But the SEC believes that these new practices should be scrutinized in the same way as traditional IPOs. “The proposed new rules and changes would, among other things, require additional disclosures about SPAC sponsors, conflicts of interest and sources of dilution,” the US market watchdog said. “They would also require additional disclosures regarding business combination transactions between SPACs and private operating companies.”
(With AFP)
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