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SEC Accepts NYSE Direct Listing Proposal

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Key Points

  • The SEC approved a new form of direct listing that permits companies to issue new shares and sell them to the public on the first day of trading in a large transaction, similar to the first day of trading for an IPO.
  • An IPO allows a company to employ banks to underwrite the deal but a company can sell shares on a stock exchange without raising new capital through an open listing.
  • The open listing option is appealing as companies can save on bank fees and avoid certain IPO constraints such as the lock-up period that prohibits employees from selling shares and in some cases venture capitalists who already have shares after the IPO for a set amount of time.
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On Wednesday, the U.S. Securities and Exchange Commission released an order authorizing the proposal by the New York Stock Exchange to allow companies to raise capital through direct listings, which is often a less costly alternative to an initial public offering.

The SEC approved a new form of direct listing that permits companies to issue new shares and sell them to the public on the first day of trading in a large transaction, similar to the first day of trading for an IPO.

Previously, companies could only use the direct listing process to allow existing investors to sell shares. Now, a company can let existing investors sell their stocks while selling newly issued shares to the public at the same time.

An IPO allows a company to employ banks to underwrite the deal but a company can sell shares on a stock exchange without raising new capital through an open listing.

The open listing option is appealing as companies can save on bank fees and avoid certain IPO constraints such as the lock-up period that prohibits employees from selling shares and in some cases venture capitalists who already have shares after the IPO for a set amount of time.

The Council of Institutional Investors, a group of pension funds and other investment managers, asked the SEC in a July letter to reject the proposal, saying investors would have less legal safeguards and may be at a higher risk due to the potential for inadequate offering size and liquidity.

Earlier this week, the biggest competitor of the NYSE, Nasdaq submitted its own request for direct listing to the SEC signaling that there is a demand for other firms to pursue the lead of the high-profile tech companies Slack, Spotify and, most recently, Palantir.

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