SPAC Regulatory Level: Combining Functional Regulation with Bottom Line Regulation

As an innovative trading model in the US financial market, the SPAC listing mechanism has gained space for rapid development and stable operation, which is closely related to reasonable and appropriate supervision. Analyzing the SPAC listing mechanism supervision system, there are three important links as follows:

(1) Regulatory rules issued by the regulatory authorities. It is mainly reflected in the Rule 419 issued by the SEC in response to the early market fraud of blank check companies; in response to the development of SPAC listing, the SEC's submission requirements for S-1 and 8-K forms.

(2) The self-regulatory rules issued by the stock exchange. It is mainly reflected in the rules of the Nasdaq stock exchange that allow SPACs and target companies to be listed after the merger, and the rules of the American stock exchange that allow SPACs to be listed directly on the main board.

(3) Self-regulation of industry rules in the SPAC market. Regarding the SPAC listing mechanism, the US regulatory authorities have not issued special regulatory provisions similar to blank check companies. The stable operation of the SPAC listing market mainly relies on industry self-discipline.

From the fraudulent listing of blank check companies to the industry self-discipline of SPAC listing, and extracting the regulatory concepts of the US regulatory authorities, this paper believes that functional regulation and bottom-line regulation are the "two magic weapons" of the SEC. First, functional supervision focuses on the basic situation of financial products, such as financial functions, financial risks, etc., and determines whether and what kind of supervision is required according to the actual situation.

In the U.S. SPAC market, the U.S. regulatory authorities jumped out of the passive regulatory model of “transaction model innovation forces regulatory reform”, although it can further regulate the SPAC transaction process through regulatory provisions similar to Rule 419 to ensure the continued stability of SPACs run, but there is a risk of over-regulation in doing so.

The U.S. regulatory authorities chose to trust the industry’s self-discipline and continued to hand over the responsibility of maintaining industry stability to the “invisible hand” of the market. From the practical effect, this move not only guaranteed the stable development of the SPAC listing market, but also provided new types of transactions. There is plenty of room for innovation in the model. Both, bottom-line supervision focuses on delineating the minimum regulatory requirements of the industry. As long as the bottom line is not broken, exchanges are allowed to freely design listing rules and self-regulatory terms, and traders are also encouraged to innovate trading tools.

The main purpose of bottom-line supervision is to prevent the stock exchange from falling into the "race to the bottom" of "ingratiating" listed companies in order to obtain more listing resources. The regulated SPACs do not continue to restrict, which reflects the tolerance of bottom-line supervision to transaction innovation; when faced with the US stock exchange allowing SPACs to be listed directly to seize the huge market resources of SPACs, the regulatory authorities also did not prevent them, which reflects the bottom-line supervision’s concern. Acceptance of the design of the self-regulatory rules of the stock exchange.

For my country, if the SPAC listing mechanism is introduced, it should learn from the US regulatory experience, and take functional regulation and bottom-line regulation as the regulatory concept of the SPAC market. First of all, it needs to be clear that the market self-discipline supervision model is not suitable for the development of new markets in my country. The tacit industry self-discipline in the U.S. SPAC market stems from the SEC’s mandatory supervision intervention in the chaotic market order during the period of blank check fraud. The over-regulated approach has led to new industry standards, making it almost impossible for SPACs to be the first to break industry rules to complete financing.

In the early stage of the introduction of the system, my country has not formed a good market competition environment, and it is obviously a fantasy to hand over the supervision power to the industry's self-discipline. However, the concept of functional supervision and bottom-line supervision is worth learning from. Specifically, the supervision system for SPAC listing can be established through the following "two-step" approach: First, the legislature and the supervisory authority should adopt a bottom-line supervision attitude, and On the basis of national financial security, with the protection of financial consumers’ rights and interests as the requirement, and with the steady development of the securities market as the goal, a unified regulatory bottom line is set.

Second, the formulation of specific regulatory provisions should delegate power to stock exchanges, and stock exchanges should supervise SPAC listings through listing rules and other self-regulatory management norms. Rules need to be guided by functional regulation. On the one hand, to comply with the regulatory trend, impose necessary and efficient supervision on SPACs, avoid "excessive supervision" and "multiple supervision", and prevent overly stringent exchange self-regulation rules from "scare away" listing resources; Unlimited relaxation of regulatory standards to "please" listed companies' "race to the bottom" trap, while avoiding the emergence of a "regulatory vacuum".