Nasdaq Moves to Tighten SPAC Rules, Citing Investor Losses and Market Volatility

Nasdaq has filed a proposal with the U.S. Securities and Exchange Commission (SEC) to significantly tighten listing standards for Special Purpose Acquisition Companies, according to a Reuters report citing a leaked internal memo dated December 21. The move is a direct response to mounting concerns over the poor post-merger performance of SPACs and the resulting losses for investors.

The exchange's rationale is clear: it's looking to curb the risks that became rampant during the blank-check boom. The memo points to "unprecedented market volatility" and "concerns over shareholder dilution." Underscoring the issue, more than 60% of companies that went public via a SPAC in 2023 are currently trading below their initial $10 offer price.

The proposed rules aim to raise the bar for entry and increase accountability. The key changes include:

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The market's initial reaction was swift and negative. The Defiance Next Gen SPAC IPO ETF (ticker: SPAK), a key industry benchmark, slid 3.2% in after-hours trading following the news. Prominent SPAC sponsors, including Chamath Palihapitiya and Bill Ackman, have yet to issue public comments.

This proposal is widely seen as a proactive measure by Nasdaq to self-regulate before the SEC, led by Chair Gary Gensler, imposes its own, potentially stricter, regulations. The SEC has been vocal about its intent to increase scrutiny of the blank-check model. An anonymous SEC official told Reuters the commission "welcomes exchange-led initiatives that enhance investor protection," suggesting the proposal may find a receptive audience.