"Blank check" companies are created as shells with capital but no operating business. Their purpose it to shop for firms that they can buy and operate. These corporations are also known as SPAC for special acquisition companies.
According to The Wall Street Journal [subscription required], "Last year, SPACs accounted for nearly a quarter of all IPOs in the U.S., according to Dealogic, and the Amex was the go-to listing location for nearly all of them." Now Nasdaq (NASDAQ: NDAQ) wants a shot at allowing SPAC listings as well.
SPACs has been put together by several LBO and investment firms to be used to make buyouts down the road. That would allow the operating companies to be publicly traded right away. But, trading them on stock markets before they buy real businesses is a bad idea even if it gives the SPAC owners an edge on getting to the public market.
Trading in SPACs is trading in a phantom. Investors have no way to know what the SPAC will buy or even if it will ever buy a real business, forcing it to return money to investors. It is a form of gambling being encouraged by the exchanges.
Hopefully, the Feds won't let the Nasdaq get into the business. It will just create one more risky and poorly understood financial instrument
Douglas A. McIntyre is an editor at 247wallst.com.
Will Rich Ross really have a positive impact on Disney's movie operations?
Consumers sick of recession, may spend extra on holidays
Corrections, seasonality and Santa Claus
