Proposal Denied! SEC Rejects Plan to Allow New Capital Raises Through Direct Listings

NYSE’s new idea hits a roadblock.

The New York Stock Exchange’s plan to allow companies to raise fresh capital through direct listings onto their platform was denied by the Securities and Exchange Commission (SEC), a spokesperson from the NYSE told CIO.

The NYSE wants to allow shareholders to monetize their shares on day one, and allow newly listed companies to be fairly valued by the public markets instead of setting a price based on investor interest during a roadshow.

It’s unclear why the SEC denied the proposal. The SEC declined to comment on the situation.

The denial does not mean the proposal is dead. SEC denials to proposals are common and sometimes are given to allow the proposal to be renegotiated.

“We remain 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,” a NYSE spokesperson told CIO.

“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.

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 proposal intends to create a new avenue of direct listings, where the company can issue new shares and sell them to the public markets, similar to an initial public offering (IPO). But unlike an IPO, an underwriter is not required to execute the transactions.

“The proposed 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 IPO if it becomes an option.

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