New rules on the SPAC market have been slow to come, but SEC Chairman Gary Gensler assured Congress on Tuesday that they are indeed coming.
why it matters: The amount of SPACs has skyrocketed over the past two years, but their rules have not evolved.
what did gensler sayIn response to a question from Sen. Sherrod Brown (D-Ohio):
“I think the risks are to the investors and the disclosure to the investors. I have asked the staff to serve up recommendations that we may consider as a commission.” But in short they cost a lot. Secondly, they usually have a two year fuse and with that two year fuse they try to go out and buy something. And a lot of institutional investors, when that happens, sell. This is called a redemption right, and retail investors are often left with dilution, or significant costs to bankers and promoters. “So we’re seeing more and more disclosures and if there are underlying conflicts along the way. And then try to flesh it out to make notice and comment and rule.”
big picture: SPACs are still going strong, despite the fact that we are peaking.
- Four separate SPACs raised $850 million in IPOs in the past. There was also a major SPAC merger (PAGAYA) and several new SPAC formations.
great risk For Gensler, it would be a major SPAC debacle that could have been prevented with more timely rulemaking. But based on yesterday’s hearing, which was dominated by crypto questions, Congress will also take some heat.
Bottom-line: The more things stay the same, the more they will eventually change.
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