Tag: direct listings

9th Circuit decides Section 11 standing in a direct listing

When the SEC was considering the NYSE’s proposal to permit direct listings of primary offerings, one of the frequently raised problems related to the potential “vulnerability” of “shareholder legal rights under Section 11 of the Securities Act.” Section 11 provides standing to sue for misstatements in a registration statement to any person acquiring “such security,” typically interpreted to mean a security registered under the specific registration statement. The “vulnerability” was thought to arise as a result of the difficulty plaintiffs may have—in a direct listing where both registered and unregistered shares may be sold at the same time—in “tracing” the shares purchased back to the registration statement in question. In approving adoption of the NYSE rule, the SEC said that it did not “expect any such tracing challenges in this context to be of such magnitude as to render the proposal inconsistent with the Act. We expect judicial precedent on traceability in the direct listing context to continue to evolve,” pointing to Pirani v. Slack Technologies. As the NYSE had observed, only the district court in Slack had addressed the issue, and had concluded that, at the pleading stage, plaintiffs could still pursue their claims even if they could not definitively trace the securities they acquired to the registration statement. However, the NYSE noted, the case was on appeal. (See this PubCo post.) That appeal, Pirani v. Slack Technologies, has just been decided by a three-judge panel of the 9th Circuit. The Court affirmed, with one dissent, the district court’s order, ruling that the plaintiff had standing to sue under Section 11.

The House hears about SPACs

Congress now seems to be all over this SPAC phenomenon.  Last week a subcommittee of the House Financial Services Committee held a hearing on “Going Public: SPACs, Direct Listings, Public Offerings, and the Need for Investor Protections.” What is the headline from the hearing?  All the witnesses agreed that, to prevent regulatory arbitrage, all IPO vehicles, whether traditional IPOs or SPACs, should operate on a level playing field and be subject to the same type of regulation of disclosure and liability.  Many House members also took the opportunity to promote their own proposed or pending legislation about the capital markets, and several House members offered their recommendations for a happy marriage. At a separate hearing, SEC Chair Gary Gensler gave testimony before a different subcommittee, which in part addressed SPACs.  Is some kind of Congressional action in the offing?

SEC fast tracks a “no” to NYSE primary direct listing proposal

You’d have to assume that the SEC didn’t spend a whole lot of time agonizing over the rule proposal—as reported by CNBC and Reuters, it took only a little over a week for the SEC to reject the NYSE’s proposed rule change that would have allowed companies going public to raise capital through primary direct listings. (See this PubCo post.)  It remains to be seen whether the SEC is opposed to the concept in general, making rehabilitation of the proposal unlikely, at least in the near term, or whether the proposal could be quickly resurrected after some fixes to the proposal (or to other rules to accommodate the proposal).

NYSE proposes allowing primary direct listings—will the rule change also be a game changer?

The NYSE has filed with the SEC a proposed rule change that would allow companies going public to raise capital through a primary direct listing. Under current NYSE rules, only secondary sales are permitted in a direct listing.  As a result, thus far, companies that have embarked on direct listings have been more of the unicorn variety, where the company was not necessarily in need of additional capital.  If approved by the SEC, will the new proposal be a game changer for the traditional underwritten IPO?