The boom in SPACs may have subsided for now, but the possibility that their popularity will rise again when market conditions improve has led global securities regulators to consider investor protection guidelines, reports Investment Executive.
The International Organization of Securities Commissions (IOSCO) published a report examining the SPAC phenomenon. The report also reviews the efforts of regulators in different markets to address SPAC risks through traditional disclosure and gatekeeper obligations.
“While SPACs pose similar risks to investors as traditional IPOs, the complexity and uncertainty inherent in the SPAC structures raise a number of different risks,” the group said.
In particular, the risk of shareholder dilution in SPACs “is often both significant and uncertain,” IOSCO noted. When a SPAC identifies a takeover target, shareholders in the initial fundraising are typically diluted by the terms of the acquisition.
At the same time, there are also “widespread concerns about retail participation in SPACs,” it said, given that the inherent disadvantages of retail investors can be exacerbated when they are involved in a deal that involves a “blank check” company raising money and carrying out a dilutive acquisition. Read more.
