The SEC approves NYSE rule changes allowing companies to raise capital by issuing new shares through a primary direct listing as an alternative to the traditional initial public offering (IPO) path for going public.
The SEC’s approval of the NYSE proposed rule change allows companies that have not previously registered common equity securities under the Exchange Act to list them on the NYSE in a primary direct listing upon the effectiveness of an initial registration statement.
Unlike traditional IPOs, direct listings provide companies the opportunity to list shares without the involvement or the ‘firm commitment’ of an underwriter.
In a direct listing, companies sell shares in an opening auction on the first date of trading on the NYSE, in addition to, or instead of, the sale of selling shareholders. Pricing is determined based on matching buy and sell orders and is conducted in accordance with applicable listing rules.
The NYSE listing requirements for direct listings include, but are not limited to:
Companies conducting a direct listing with a capital raise could potentially save on underwriting fees, thereby making it an attractive alternative to the traditional IPO.
Despite the lure of potential cost savings, the SEC remarked that it does not anticipate all companies eligible to go public through a primary direct listing will do so. The SEC provided instances when direct listings may not be suitable; for example:
The SEC concluded that the proposed rule change will facilitate the orderly distribution and trading of shares, foster competition, and protect investors and the public interest.