(Reuters) – Wall Street’s top regulator is due to finalize on Wednesday new rules requiring greater transparency in the market for deals involving “special-purpose acquisition companies” (SPACs), an investing tool that has recently lost favor in equities markets.
Also known as a “blank check” company, a SPAC is a publicly traded shell company used to acquire private entities, thereby taking them public while side-stepping some regulatory hurdles involved in a normal initial public offering (IPO).
A burst of interest in 2020 and early 2021 prompted concerns that SPACs could leave investors with little visibility into what they were buying.
If adopted by the five-member U.S. Securities and Exchange Commission (SEC) on Wednesday, the proposed new rule, first unveiled in 2022, would require stricter disclosures about compensation for SPAC sponsors, conflicts of interest and the potential for the dilution of share value.
The proposed rule would also in some cases require that companies targeted for acquisitions, known as “de-SPAC” transactions, register with the SEC and take responsibility for investor disclosures about the deal, SEC officials said in advance of the vote.
Officials say the rules would bring regulation of SPAC deals more in line with investor protections offered by traditional IPOs.
However, nearly two years after they were first proposed, the new SEC regulations arrive as investor interest in SPACs has all but vanished.
As a of last year, SPAC IPO value had fallen 98% to just $4 billion from a peak in 2021 while the performance of SPAC-launched stocks has tumbled more than 90%, according to figures from SPAC Research and the financial data firm Solactive.
SEC officials said that in light of public comments they had received on the proposal they had made changes to the final regulation in several ways. That included dropping a requirement that would have automatically deemed some SPAC IPO participants to be underwriters in the subsequent de-SPAC deal.
Instead, the agency will issue guidance on rules to explain that some participants may qualify as underwriters with legal responsibilities for investor disclosures made as part of the de-SPAC deal.
SEC enforcement officials have also moved to crack down on abuses in the SPAC market, bringing a string of SPAC-related enforcement actions in 2023 alone, including a July settlement with Digital World Acquisition Corp, a firm set to take former U.S. President Donald Trump’s social media platform Truth Social public.
(Reporting by Douglas Gillison, additional reporting by Lance Tupper and Echo Wang in New York, Editing by Deepa Babington)
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