Aug. 28, 2021
To whom this may concern I’m writing to comment and give support to the proposed amendment of the NYSE Listed Company Manual, adopting a new listing standard for the listing of Subscription Warrants. As a retail investor I believe that a Subscription Warrant cures many of the deficits of a purchasing shares of a traditional Special Purpose Acquisition Company, including extending the time limit and removing the requirement of tying up large amounts of capital, simplifying the capital structure by eliminating the need for warrants as an incentive to fund an IPO, and limiting/eliminating the use of leverage by retail investors on speculative investments. Subscription Warrants would extend the time limit that a Sponsor is permitted to search for and complete an Initial Business Combination and is a significant advantage to investors. Potential Target companies understand that SPAC sponsors have a time limit in which a merger needs to be completed and they use this knowledge to pressure sponsors into less than favorable terms and valuations. Less favorable valuations and terms often reduce the present and potential value of an investors stock. It’s been thoroughly reported that SPACs tend to underperform the broader market, although, there are many variables, I believe that agreed upon valuations are inversely correlated with return performance post-merger. It’s also beneficial to the retail trader that large amounts of capital would not be required to be tied up under the proposed amendment further permitting the retail trader to participate in a Subscription Warrant for an extended period of time. Subscription Warrants would simplify the capital structure by eliminating the need of a Sponsor to offer substantial amounts of warrants to ensure a successful IPO of the SPAC. Warrants offered in a traditional SPAC IPO have a significant dilutive effect on subsequent investors, which are often retail investors that don’t have access to IPO and/or understand the complexity of dilution from the SPAC Warrants. Subscription Warrants would Limit and reduce the amount of leverage utilized by retail traders on SPACs and similar instruments protecting investors and reducing volatility. A quick look through social media would reveal that there has been rampant speculation on SPACs by retail traders, through the use of options trading and margin debt. The introduction of Subscription Warrants will reduce the amount of leverage in use by retail investors by eliminating speculative options trading on these already speculative investments. This would also have the effect of reducing some traders margin balances, which were obtained to enter into speculative options contracts, and reducing the overall volatility in the Subscription Warrant. Overall, I am supportive of the approval of the proposed amendment; however, I have concerns the I believe that the SEC should address to protect the interests of retail investors, including the sale and distribution of new Subscription Warrants and the method of distribution for new Subscription Warrants. The SEC should address how new Subscription Warrants are valued and if the Sponsor can receive proceeds from the sale and distribution of new Subscription Warrants, since the Subscription Warrants do not have any underlying assets or business operations and would derive their value solely from the reputation of the Sponsor or Speculation of possible Targets, the valuation is highly subjective. This creates the ability for Sponsors to profit off of their reputation without providing value in exchange. Due to the proposed ten year time limit, it will allow Sponsors to profit from their reputation, by selling and distributing Subscription Warrants for several years without demonstrating that they have the ability and intend to effect a merger. The SEC should address Whether a Sponsor could sell a Subscription Warrant and who receives the proceeds from the sale? Whether a Sponsor could provide them to a ‘customer’ of a related party, such as a paid newsletter published by the Sponsor? The SEC should address how Subscription Warrants can be distributed, since the warrants are likely to have zero to very little initial cost and zero to very little carrying cost, but have the potential to be very valuable, should a merger at an attractive valuation and terms be completed. Without adequate rules and regulations that address how new Subscription Warrants can be distributed a Sponsor with nefarious intentions, could decide to distribute warrants in a manner that solely benefits the Sponsor, including distributing Subscription Warrants to related parties for zero to little cost, who could then hold the Subscription Warrants until a target is identified, then resell the them to members of the investing community with the entirety of the proceeds recognized as profit with no risk to capital and no opportunity cost. This has potential to enrich the Sponsor and related parties without incurring any risk to capital or opportunity cost. Thank you for taking the time to read my letter. This letter addresses my strongest views and concerns on the proposed amendment and does not include all of my views. I hope that my viewpoints and suggestions are considered and that the SEC can offer additional insight to work towards the approval of the proposed amendment. Regards Nicholas Jenzer