News & Analysis

Traders given a second chance to SPACulate

Andrew Saks, Friday, 30 April 2021

Trading indices within the well-ordered structure of the British capital markets environment is a very urbane and finely honed experience.

Not only are London's executing venues home to some of the most prestigious stock in highly stable publicly listed companies, but the market structure is long-established and used as a reference point for the trading of indices in all capacities from professional trading desks to retail participants globally.

It is therefore of great significance that the British financial markets regulator, the Financial Conduct Authority (FCA) has issued a proposal to waive the rule which requires trading in a listed Special Purpose Acquisition Company, known by its acronym SPAC, to be suspended when it identifies a company to purchase.

There has been a tremendous interest in SPAC investing recently. Whether investing in a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company can be considered extremely speculatory or simply a prudent method of getting in at the beginning is a matter of opinion.

These entities, also known as "blank check companies," have existed for a number of years, however recently, they've become more popular, attracting big-name underwriters and investors and raising a record amount of IPO money in 2019. In 2020, as of the beginning of August, more than 50 SPACs have been formed in the United States which have raised some $21.5 billion.

This raised awareness and suddenly the four-letter acronym that had gone relatively unnoticed for several years was the latest buzzword.

Just one month ago, the FCA publicly confirmed that it would be consulting on amendments to its Listing Rules and related guidance to strengthen protections for investors in SPACs. The consultation will consider the structural features and enhanced disclosure, including a minimum market capitalisation and a redemption option for investors, required to provide appropriate investor protection.

At the end of March, the FCA said its proposals will help to ensure that SPACs operate within a framework of high regulatory standards and oversight. Where such protections are in place, the FCA stated that it would look to consider that the existing presumption of suspension of the listing for such companies at the point of announcement of an acquisition.

Now, a month later, the FCA's director of market oversight Clare Cole said: “We are consulting on a set of clear conditions based on which we will not look to suspend the listing of a SPAC. These changes should encourage issuers that are willing to provide transparency and strong protections to investors. This should support market confidence and aligns our approach more closely with standards in other international markets.”

Some degree of lobbying by British lawyers and bankers had taken place among those with vested interests, and back in February a huge spike in interest in SPACs arrived in London after British electric vehicle company Arrival listed in the US through this channel last year, drawing attention to the less favorable environment in the UK for SPACs, which are proliferating rapidly on the other side of the Atlantic.

“The appeal of doing a SPACis severely limited in the UK,” said Jason Manketo, capital markets partner at Linklaters in February. Current regulation makes London “less competitive particularly for tech IPOs and founder-led IPOs compared to the US”.

Well, now the pragmatic and highly respected FCA, which is the world's only financial markets authority that has a sandbox which is open to authorised firms, unauthorised firms that require authorisation and technology businesses that are looking to deliver innovation in the UK financial services market, is looking closely at how to provide the best environment for trading in SPACs.

According to many London-based analysts, there is now genuine investor interest in SPACS on this side of the Atlantic following the review into listing rules by Lord Hill's Listing Review.

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