On August 26, 2020, the Securities and Exchange Commission (the “SEC”) approved the proposal submitted by the New York Stock Exchange (“NYSE”) that allows companies to conduct concurrent primary offerings as part of a direct listing on that exchange. A company may issue new shares and sell them to the public on its first trading day without conducting a firm commitment underwritten offering. Previously, private companies that chose to undertake a direct listing on the NYSE undertook the direct listing together with registering the resale of shares by existing shareholders.
Under the newly approved rules, the NYSE will deem a company to have met the applicable aggregate market value of publicly-held shares requirement if the company sells at least $100 million in market value of its shares in the NYSE’s opening auction on the first day of trading. Alternatively, the NYSE will determine that such company has met its market value of publicly-held shares requirement if the aggregate market value of the shares the company will sell in the opening auction on the first day of trading and the shares that are publicly-held immediately prior to the listing is at least $250 million, with the market value calculated using a price per share equal to the lowest price of the price range established by the company in its registration statement. The NYSE believes that these requirements ensure that any company conducting a direct listing with a concurrent primary offering would be of a suitable size for NYSE listing and that there would be sufficient liquidity for the security to be suitable for auction market trading. Additionally, issuers would be immediately subject to all applicable initial listing requirements, including the requirement to have at least 400 round lot holders.
In its approval, the SEC reminded offering participants of the broad definition of “underwriter” in the Securities Act and that a financial advisor to a company engaged in a primary offering as part of a direct listing may, depending on the nature and extent of the financial advisor’s activities, be deemed a statutory “underwriter” with respect to the securities offering, with attendant underwriter liabilities. Nonetheless, providing an additional option for a private company to list its securities and simultaneously raise some capital is likely to encourage more issuers to access the public markets this way.
The Nasdaq Stock Market recently filed a similar rule proposal with the SEC. A link to the SEC’s approval of the NYSE proposal can be found here.