In late November, the NYSE filed with the SEC a proposed rule change that would have allowed 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. The new proposal looked like it could be a game changer for the traditional underwritten IPO. (See this PubCo post.) But then, as reported by CNBC and Reuters, a little over a week later, the SEC rejected the NYSE’s proposal, and it was removed from the NYSE website, causing a lot of speculation about the nature of the SEC’s objection and whether the proposal could be resurrected. At the time, an NYSE spokesperson confirmed to CNBC that the proposal had been rejected, but said that the NYSE remained “‘committed to evolving the direct listing product…This sort of action is not unusual in the filing process and we will continue to work with the SEC on this initiative.’” (See this PubCo post.) Apparently, the NYSE meant what it said: the proposal was just refiled with some clarifications and corrections, and then, on Friday afternoon, the NYSE filed an amendment to the refiled proposal, which supersedes the earlier filing in its entirety. So now we’re back at the starting gate.
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).
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?
Time to catch up on some of the recent proposals at the Exchanges.
No, it’s not Groundhog Day. (In fact, it’s election day. Go vote!) But this proposal from the NYSE to amend Sections 312.03 and 312.04 of the Listed Company Manual sounds remarkably similar to the one that the SEC has just approved for Nasdaq—modifications to the price requirements for purposes of determining whether shareholder approval is required for certain issuances. (See this PubCo post.) Just like the new Nasdaq rule, the NYSE proposal would
change the definition of market value for purposes of the shareholder approval rule and
eliminate the requirement for shareholder approval of issuances at a price less than book value but greater than market value.
The chatter has it that some unicorns are considering skipping the standard underwritten IPO in favor of a “direct listing.” Essentially, this process involves a registered sale by selling shareholders directly into the public market with no intermediary underwriter and—imagine this—no underwriting commissions and no roadshow or similar expenses. Of course, there’s also the small matter of no proceeds to the company. What’s more, companies may be on their own when it comes to any marketing effort, otherwise typically provided by the bankers, and there may be only limited banker support of the stock price in the aftermarket. And what about that first day pop in the stock that can breed so much excitement? Of course, many companies have taken advantage of the fertile territory for capital raising provided by the private markets—after all, that’s how they got to be unicorns—and may have no need of additional capital at this point. Their motivation for becoming public may have more to do with shareholder liquidity and obtaining the “currency” that publicly traded stock can provide in the context of acquisitions and similar transactions. Whether the “direct listing” route to going public catches fire remains to be seen.
NYSE proposes changes regarding delivery to NYSE of proxy materials; SEC approves NYSE restriction on timing of issuance of material news after NYSE close
Two changes—one proposed, one approved—in the NYSE Manual: first, the NYSE is proposing to modify its requirements with respect to delivery to the NYSE of hard copies of proxy materials. Second, the SEC has approved the NYSE’s proposal, as amended, related to a limitation on the issuance of material news in the period immediately after the NYSE close.