Congress now seems to be all over this SPAC phenomenon. Last week a subcommittee of the House Financial Services Committee held a hearing on “Going Public: SPACs, Direct Listings, Public Offerings, and the Need for Investor Protections.” What is the headline from the hearing? All the witnesses agreed that, to prevent regulatory arbitrage, all IPO vehicles, whether traditional IPOs or SPACs, should operate on a level playing field and be subject to the same type of regulation of disclosure and liability. Many House members also took the opportunity to promote their own proposed or pending legislation about the capital markets, and several House members offered their recommendations for a happy marriage. At a separate hearing, SEC Chair Gary Gensler gave testimony before a different subcommittee, which in part addressed SPACs. Is some kind of Congressional action in the offing?
You’d have to assume that the SEC didn’t spend a whole lot of time agonizing over the rule proposal—as reported by CNBC and Reuters, it took only a little over a week for the SEC to reject the NYSE’s proposed rule change that would have allowed companies going public to raise capital through primary direct listings. (See this PubCo post.) It remains to be seen whether the SEC is opposed to the concept in general, making rehabilitation of the proposal unlikely, at least in the near term, or whether the proposal could be quickly resurrected after some fixes to the proposal (or to other rules to accommodate the proposal).
The NYSE has filed with the SEC a proposed rule change that would allow companies going public to raise capital through a primary direct listing. Under current NYSE rules, only secondary sales are permitted in a direct listing. As a result, thus far, companies that have embarked on direct listings have been more of the unicorn variety, where the company was not necessarily in need of additional capital. If approved by the SEC, will the new proposal be a game changer for the traditional underwritten IPO?