The US gendarme wants to align the rules of SPACs with those of IPOs

Will the race for the Spacs, stars of the stock market in 2021, experience a turning point? The SEC, the police of the American stock market, decided to give it their grain of sand by publishing a press release on Wednesday with new rules. the SPACE (Special Purpose Acquisition Company)these very popular empty-shell companies to facilitate IPOs will have to comply with financial rules and disclose more information about their deals.

By its nature, a Spac brings into play several investment actors, funds or companies. like donald trump or of bernard arnault, all united in the goal of raising funds quickly in the stock market. A Space is certainly a non-trading company but the SEC (National Stock Market Commission) intends to apply the same rules as to a conventional initial public offering, subject to transparency rules.

Until now, the funds are provided through a merger, to a new or existing company seeking financing. Butne of the peculiarities for the shareholders of the first round of financing is that they do not know in advance which company the SPAC will be associated with.

As a result, investors have no idea which project their funds will be invested in. However, from January to October 2021, some 350 of these empty shells were created on the US stock market, having raised more than 107 billion dollars in funds, according to data from the firm Dealogics. In 2020 and 2021, the financial instrument was used in the majority of IPOs in the US market by names such as Wework, the specialist in shared offices, or Lucid, the manufacturer of electric vehicles.

“Information asymmetries”

In addition, the SEC wants “improve information disclosure and investor protection“in the IPOs of Spacs and in the merger operations between companies that involve these front companies, indicates the stock market police in a press release.

“I think it is important to take into account the economic engine of Spacs”recognized the president of the SEC, Gary Gensler, since this new instrument has flourished in recent years in financial worldaccelerating the IPO of hundreds of companies.

Plus “investors deserve the protections they receive from traditional IPOs, with respect to information asymmetries, fraud and conflicts of interest” added Mr. Gensler. “The new rules and proposed changes would require, among other things, additional disclosures about SPAC sponsors, conflicts of interest, and sources of dilution.“, indicate the stock market authorities.

“They would also require additional disclosures with respect to business combination transactions between SPACs and private operating companies.“, adds the press release.

These regulatory proposals are subject to public consultation for 60 days.

(with AFP)

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