Relaxed NYSE Direct Listing Requirements Face Opposition
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Why Big Investors Oppose the New NYSE Direct Listing Rules


Sep. 3 2020, Updated 9:28 a.m. ET

The NYSE, along with the Nasdaq, is trying to make going public easy for private companies by adjusting its direct listing requirements. But some investors are uncomfortable with the changes, setting the stage for a showdown. 

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Direct listing cuts costs for companies and removes lockup period requirement

A direct listing is an alternative to the traditional IPO process, which involves companies hiring banks to facilitate the sale of their shares to public investors. Therefore, a company going public through the normal IPO path would incur some costs to the underwriters of the listing. Additionally, in normal IPOs, early investors and company insiders are subject to a lockup period during which they can't sell their shares.

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Spotify Technology and Slack Technologies are two prominent names that chose to directly list their stock instead of using the conventional IPO process. Peter Thiel-backed analysis software startup Palantir has also chosen the direct listing path. In these direct listings, however, the companies didn't sell new shares to raise capital—Spotify and Slack were already cash-rich at the time their public listing.

What are the new NYSE direct listing requirements?

In 2018, the NYSE got the SEC to approve changes to its rules on direct listings on its exchange. But direct listings came with a catch for companies that chose it: they couldn't sell new shares to the public to raise capital. Instead, only existing investors in the company would be able to sell their shares. 

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Now, the NYSE has again changed its direct listing rules, as it felt they didn’t sufficiently serve the market. As a result, companies going public through direct listings can do so to raise capital, like in a traditional IPO. The new NYSE direct listing requirements state that the company must have a market value of at least $100 million, at least 400 round lot shareholders, and a stock price of at least $4. Furthermore, the company must designate a market maker to facilitate the direct listing auction.

The NYSE and Nasdaq believe that relaxing the direct listing requirements will benefit not just the companies seeking to go public, but also the investing community. Direct listings lower the costs of raising capital for a company, and removing lockup periods lets early investors exit positions immediately.

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Council of Institutional Investors petitions SEC over new NYSE direct listing rules

The Council of Institutional Investors is worried about the new NYSE direct listing rules, as it believes they weaken safeguards built to protect investors. The group, whose members have about $4 trillion in assets, has asked the SEC to suspend its approval of the new NYSE direct listing requirements pending a full review of the proposed rule changes by the regulator’s commissioners. 


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