March 29, 2022
After seeing the wave of people calling this another penny stock or claiming to speak for large groups of people (e.g. reddit traders) of which I am a part, I felt the need to leave a few personal comments/opinions in support of the NYSE proposal.
1. The individual who wrote as 'Reddit Traders' in no way represents the majority or probably even a notable minority of the group they proport to. General sentiment for people who care about this issue (from what I can tell) is that the subscription warrant 'SPARC' vehicle is an improvement to the traditional opt-out high opportunity cost structure of SPACs and people want it to exist so they can get their cash out to deploy elsewhere while keeping the opportunity of investing in interesting IPOs.
2. Regarding people calling this another pump and dump risk that will be abused, the primary risk of this comes from the lower unit price of SPARCs vs SPACs which already has precedence for regulation limits in the NYSE. Otherwise you're still investing in a management team and idea pre-announcement and they're identical post announcement except opt-in vs opt-out. The risk of speculation going wrong or out of control is part of every investment. Investing itself is just speculating on the future. Is it easier to pump and dump because it's cheaper initially? Sure, on some marginal level. But this feels like telling someone they can't use a computer and e-mail because it'll be easier to get hacked. Instead stick with using a typewriter and snail mail. In the hands of well intended and rational actors SPARC is a good thing. If you want to account for bad actors...even water has been repurposed for torture. Seems silly to limit progress for that reason alone vs finding a reasonable middle ground like the NYSE proposal and amendment have tried to do.
3. On the new 'SPARC' structure itself, it was clearly designed to address problems that SPAC managers have run into when trying to negotiate deals. Extending the timeline, lowering opportunity cost pressures and allowing for variable amounts of capital is a great advantage for management teams and in turn a great advantage for investors in the vehicle.
Risks seem to be in the creation/initial distribution of the warrants, the price, and the extended timeline. Even though the time horizon becomes extended, I believe the incremental risk of long time horizons is overshadowed by the gain of lower opportunity cost. Additionally it's generally not in the interest of the managing party to let things sit for long periods of time, but it does help at the negotiating table when the counter party can't hardball you with a deadline.
I believe the price per unit is already being addressed and to me is somewhat arbitrary anyways. The NYSE already has rules in place for limits to remain listed, so precedence already exists for what is acceptable here. Also valuing these sorts of financial instruments is already a thing in the form of options/warrants so that doesn't seem to be a deal breaker either.
Regarding the creation and distribution of the warrants, worries that they may be unfairly distributed or create a conflict of interest seem kind of silly given the way the traditional IPO process works. Retail doesn't even get a seat at the table, and distribution of traditional IPO shares is centrally decided and extremely unfair. Additionally bankers have pretty major conflict of interests between good valuations for the company going public and making sure there is enough demand for shares so they can collect their bottom line. Is SPARC perfect? No. Is it better than what we have now? Yes.
Thanks for your time.