On February 2018, the Securities and Exchange Commission (“SEC”) approved the New York Stock Exchange’s (the “NYSE”) proposal to permit qualifying private companies to use “direct listings” to list their shares on the NYSE so long as the direct listing is accompanied by a concurrent resale registration statement under the Securities Act of 1933. To accommodate these direct listings, the NYSE modified its Rules 15, 104, and 123(d). In March 2018, the NYSE issued an information memo highlighting the changes.

NYSE Rule 15 sets forth the requirements for a pre-opening indication, which is the price range within which the opening of trading for a security is anticipated to occur. When the opening transaction on the NYSE is anticipated to be at a price that deviates by more than the “Applicable Price Range” from a specified “Reference Price,” then the Designated Market Maker (“DMM”) must publish a pre-opening indication before a security opens. Under amended Rule 15, the reference price for directly listed securities is defined as: (i) the most recent transaction price if the security had recent sustained trading in a private placement market or, if none, (ii) a price determined by the NYSE in consultation with a financial adviser to the issuer of such security.

Rule 104 sets forth the responsibilities and duties of a DMM. Changes to Rule 104 require that the DMM first consult with the financial adviser to the issuer before a direct public offering (DPO) for securities that do not have a recent sustained history of trading in a private placement market. This consultation aims to promote a fair and orderly opening of such security. Last, the SEC approved an amendment to NYSE Rule 123(d) and granted the NYSE discretion to declare a regulatory halt in a security that is the subject of an initial pricing on the NYSE if that security has not been listed on a national securities exchange or traded in the over-the-counter market pursuant to FINRA Form 211 immediately prior to the initial pricing. This regulatory halt would be terminated when the DMM opens the security. The NYSE Information Memo on Direct Listings can be found in full here.

Despite the NYSE accommodations for DPOs, the Financial Industry Regulatory Authority, Inc. (“FINRA”) advises its member firms to exercise caution when recommending and entering unpriced customer orders at and around the opening on the first day of trading of a direct listing of a security. FINRA notes that there is potential for substantial variance in the opening price of a direct listing and in the subsequent prices at which trading on the secondary market occurs on the first day of trading. As a consequence, FINRA is concerned that without the use of a limit price, customers may receive execution at prices that are not in line with their expectations. Instead, FINRA encourages its member firms to consider using and recommending priced, customer limit orders. FINRA Regulatory Notice 18-11 can be found in full here.

Recent years have seen significant growth in Securities Act of 1933 (“1933 Act”) class actions filed in California state courts, based on conflicting readings of the jurisdictional provisions of the Securities Litigation Uniform Standards Act (“SLUSA”).  SLUSA was designed, among other things, to prevent certain state private securities class action lawsuits alleging fraud from being used to frustrate the objectives of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). However, the jurisdictional provisions of SLUSA proved to be vague and unclear, resulting in a circuit split.  Some courts had found that SLUSA covered class actions filed in state court alleging only 1933 Act claims must be heard in federal courts.  In Cyan, Inc. v. Beaver County Employees Retirement Fundthe Supreme Court unanimously held that state courts have jurisdiction over class actions that allege federal violations under the 1933 Act and defendants are not permitted to remove such actions from state court to federal court for lack of subject matter jurisdiction.  In Cyan, the Court was charged with interpreting the jurisdictional provisions of the SLUSA to determine the jurisdictions of such claims. Justice Kagan concluded: “SLUSA’s text, read most straightforwardly, leaves in place state courts’ jurisdiction over 1933 Act claims, including when brought in class actions.” Thus, the Court determined SLUSA did not strip state courts of jurisdiction over class actions alleging violations under the 1933 Act. Furthermore, the court concluded that SLUSA did not empower defendants to remove such actions from state to federal court. State courts will continue to exercise concurrent jurisdiction over class actions that allege federal violations under the 1933 Act.  The Supreme Court cured a circuit split and the decision may lead to more securities class actions alleging 1933 Act violations to be brought in state courts.