.jpg)
The Board of the International Organization of Securities Commissions today published a final report on Special Purpose Acquisition Companies (SPACs), which aims to help IOSCO members review or improve their approach to these companies.
The recent surge in SPACs raised concerns for many IOSCO members about investor protection and market integrity. In 2021, IOSCO established a SPAC network, chaired by Jean-Paul Servais, Chairman of the Financial Services and Markets Authority, Belgium and Chair of the IOSCO Board, to facilitate the sharing of information and investigate the issues they raised.
The report takes a risk-based approach to the regulation of SPACs. While SPACs pose similar risks to investors as traditional IPOs, the complexity and uncertainty inherent in the SPAC structures raise a number of different risks. Therefore, while the rules that apply to SPACs may be similar to those for traditional IPOs, they differ in some critical ways.
The report focuses first on the differences and similarities between the regulation of SPACs and traditional IPOs with respect to disclosure obligations and gatekeeper functions.
The report then analyses the approaches and lessons learnt in three focus areas. First, the dilution of the value of shareholders’ initial investment in a SPAC is often both significant and uncertain and the report outlines how regulators may address these risks through disclosure requirements or mechanisms such as dilution caps.
Second, due to the inherent uncertainty and complexity of SPACs, there are widespread concerns about retail participation in SPACs. The report identifies the various means by which regulatory frameworks may address these risks through restrictions and general or specific investor protection measures. Finally, although the boom in SPAC-IPOs may be over, a significant backlog of SPACs will be liquidated if they fail to find a target. The report outlines the potential issues that might arise here.
The report concludes there is currently no one-size-fits-all model for the regulation of SPACs; markets and regulations are still evolving, and it is too early to assess what the most effective approaches are to regulating SPACs. Nonetheless, the report identifies a set of common approaches and sets out some considerations for designing or fine-tuning SPAC Frameworks. The considerations cover a range of issues that may arise at the various stages of a SPAC’s lifecycle, from the SPAC’s initial offering to the combination with a target or its liquidation. As such, this toolkit is intended to support or guide regulators as they review, develop, align or improve their SPAC framework, as well as to help them identify potential risks.
However, SPACs are just a small part of the primary markets, and this work has come at a time when the functioning of primary markets more generally merits closer monitoring. The board therefore agreed to transform the SPAC Network into a Primary Market Network under the leadership of the C1 Chair, Paul Munter.
Mr. Servais said: “The SPAC boom of the last couple of years raised a host of issues related to investor protection and fair, orderly and efficient markets. While the boom may be over, it is important that we now take stock of whether there are any lessons to be learnt from the recent experiences with SPACs. This report develops a toolkit that IOSCO members may use to help them to monitor, assess or review their approach to SPACs and will be of use when issues around SPACs arise again in the future.”
