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After two years of underwhelming global earnings for lenders, the financing industry has welcomed the emergence of SPACs, but the UK regulator is now considering plans to tighten restrictions on this lucrative market segment.
Securities lending market participants stand to bank significant earnings from SPACs by facilitating arbitrage strategies, with market observers predicting this to account for an increasing portion of overall revenue from lending programmes around the globe.
While the US has gone full steam ahead with special purpose acquisition companies (SPACs), the UK, although looking to assert its post-Brexit position as the financial centre of the world, has yet to capitalise on the phenomenon.
Although rumblings of welcoming more SPACs to the City of London have been heard in recent weeks, the UK’s financial regulator says it will shortly launch a consultation on SPACs in order to improve their regulatory oversight and protect potential investors.
The Financial Conduct Authority (FCA) says the consultation — taking place over four weeks — is designed to shore up guidance surrounding SPACs. The regulator hopes to have the new guidelines in place by the summer.
The FCA said proposals to amend its Listing Rules will help ensure SPACs — which raise money from investors, list on a stock market and then look for an acquisition target to take public — operate within a framework of “high regulatory standards and oversight”.
The consultation will consider the structural features and enhanced disclosure, including a minimum market capitalisation and a redemption option for investors, required to provide appropriate investor protection.
“Where such protections are in place, we consider that the existing presumption of suspension of the listing for such companies at the point of announcement of an acquisition target is no longer required and we therefore intend to consult on this basis, aligning this element of our rules more closely with other major jurisdictions,” the FCA says.
SPACs have been in the limelight recently, as part of a post-pandemic wave of market activity, with some highlighting their dangers to retail investors.
Earlier this month, the US Securities and Exchange Commission’s investor protection division said that as SPACs have become a popular way to transition a company from a private company to a publicly-traded one, investors should not base SPAC-related investment decisions solely on celebrity involvement or endorsement.
Celebrity-endorsed SPACs and the promise of easy money for retail investors are yet another example of how social media has come to dominate the investing landscape.
The ‘meme stocks’ of early 2021, particularly the GameStop saga, have underlined regulators’ advice that to make investment decisions based on social media is a fool’s errand.
