March 11, 2022
I am writing to express my support for the proposed rule change in SR-NYSE-2021-45.
The current model for SPAC vehicles is broken and has shown on many occasions that it ties up retail investors capital, only to produce hefty fees and bonuses for sponsors on completion of a deal. The current model needs reform.
Using a subscription model for warrants creates a new incentive structure, which although complex, provides a more retail investor friendly approach. The SEC rightly questioned issues around the cost of the warrants and I feel the response from the proponents goes some way to ameliorating these issues. Yet regardless of any such technical questions, placing the power to subscribe in the hands of investors, who do not have to put up significant capital in the early stages, gives retail investors significantly more flexibility and more favourable terms. Given that SPAC investments have recently performed poorly post-completion, it is only right that the warrant structure should change to place investors in a better position, enabling them to take other positions with their capital in the pre-completion stage and empowering them to make clear headed decisions about whether to invest in the deal without having their minds clouded by the sums they would otherwise have had to commit to a traditional SPAC, and the price fluctuations that are associated with pre deal SPAC investment. Further, it would serve to reduce the speculative trading of pre deal SPACs, a key driver of volatility and the harmful manipulation of less informed investors.
Indeed some comments have noted the risk of these proposed warrants becoming speculative assets. Though the risk exists, it is arguably smaller than currently is the case with SPACs, given that the price of the warrants will be far lower, provided the float is large enough.
To conclude, I believe this proposal is one of the few out there that adequately attempts to resolve the issue of SPAC investing, an issue that the SEC has placed great emphasis on. Given that the SPAC market has cooled significantly since its pandemic highs, now is an optimal time to introduce new vehicles such as the one proposed, as the risk of speculative or risky use of the proposed warrants is now far lower than a year ago, and it is lower than exists with other currently trading SPACs.