initial public offerings (IPOs) trading on American exchanges

Wednesday, December 23, 2020

SEC approves NYSE proposal allowing for direct listings

The U.S. Securities and Exchange Commission approved a proposed rule change that allows the direct listing offering.

  • Intercontinental Exchange's (ICE) New York Stock Exchange will be allowed to offer issuers the ability to raise primary capital through direct listings, said NYSE President Stacey Cunningham.
  • Direct listings offer an alternative to initial public offerings for taking a company public. A direct listing sells existing shares, rather than issuing new shares, as is done in an IPO. It also bypasses underwriters in the process of selling the shares, thereby reducing the cost of the offering.
  • Companies will not lose gains if their stock pops.
  • Since new shares aren't sold through direct listings, companies can't raise capital through them. Rather companies that use direct listings may be seeking other benefits of being a publicly traded company, such as increasing liquidity for existing shareholders.
  • Recent direct listings include Palantir and Asana, which went public in September. 
  • The change, following months of industry haggling, will help reduce what critics call excessive underwriter fees, a major barrier to companies looking to go public. It is especially important to technology companies and start-ups, both of which would stand to gain greatly from the new SEC ruling.
NYSE President Stacey Cunningham on CNBC, Dec 22, 2020

  • “This is a game changer for our capital markets, leveling the playing field for everyday investors and providing companies with another path to go public at a moment when they are seeking just this type of innovation,” NYSE President Stacey Cunningham said in a statement.
  • In 2018, music streaming business Spotify Technology SA was the first major company to go public via that route. Direct listings had also been limited to companies wanting to give early investors or management the opportunity to cash out by selling stock.
  • Peter Thiel-backed Palantir Technologies and Asana are some of the high-profile, cash-rich private start-ups to choose the direct listing route this year.
  • Under the NYSE plan, issuers can sell shares directly on the exchange in an auction, which would increase opportunities for more investors to purchase shares at the initial offering price, rather than having to wait to buy in the aftermarket.
  • NYSE rival Nasdaq Inc has a filed a similar direct listing proposal with the SEC.

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