NYSE Proposes New Method for Companies to Raise Capital When Going Public

Direct listing would allow companies to sell shares in opening auction on first day on exchange.

The New York Stock Exchange (NYSE) filed a proposal to the Securities and Exchange Commission (SEC) that would allow companies to simultaneously go public through a direct listing and raise cash from public market investors.

Historically, direct listings let companies go public by selling existing shares rather than issuing new shares. The NYSE’s proposed rule change implements an option to raise capital in a direct listing, opening a new method for companies to access public markets.

“The proposed change would allow a company that has not previously had its common equity securities registered under the [Securities] Act, to list its common equity securities on the Exchange at the time of effectiveness of a registration statement pursuant to which the company will sell shares in the opening auction on the first day of trading on the Exchange,” the NYSE wrote in its proposal.

The NYSE published potential benefits on its website. Private shareholders would be able to monetize their shares on day one, and allow the company to be fairly valued by the public markets in contrast to setting a price based on investor interest during a roadshow.

Direct listings do not require the issuance of new shares, and allow existing shareholders to trade immediately after listing.  Spotify and Slack used the method largely because they had sufficient capital on their balance sheets and wanted to avoid potential dilution of shares.

“The Exchange believes that this heightened standard significantly increases the likelihood that a liquid trading market will develop after a Selling Shareholder Direct Listing or Primary Direct Floor Listing and therefore makes it likely that these companies will meet the initial distribution standards within the Distribution Standard Compliance Period,” the NYSE said.

“The propose amendments would not impose any burden on competition, but would rather increase competition by providing new pathways for companies to access the public markets,” the exchange’s statement continued.

AirBNB intends to go public in 2020 and stated it is considering a direct listing rather than a traditional initial public offering (IPO).

The proposed change is now subject to public comment and the SEC’s review.

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