The Securities and Exchange Commission (SEC) has given the green light for the New York Stock Exchange (NYSE) to allow some companies to raise capital without the expense of an IPO.
- In a Wednesday order, the SEC approved the exchange to amend Chapter One of the Listed Company Manual to allow firms to hold direct listings.
- The move means companies can now launch a direct listing on the NYSE as an alternate to the initial public offering (IPO), generally preferred by the SEC.
- The direct benefit means it would reduce costs associated with soliciting a bank to underwrite the transaction of an IPO.
- Previously, companies that have sold common equity securities in a private placement were allowed to list shares on the NYSE "solely" to allow shareholders to trade the stock.
- The rule change widens the scope to allow companies to list shares "in addition to, or instead of" facilitating shareholder sales.
- Firms will be allowed the new listing on a case-by-case basis and must meet certain thresholds, including being likely to sell $100 million in shares on the first day of trading on the NYSE.
- The so-called Primary Direct Floor Listing will also allow companies to avoid certain restrictions associated with IPOs, namely lockup periods that prevent insider trading.
- The American Securities Association (ASA), a brokerage group, said direct listings without protections against insider trading would allow for nefarious actors to cash out at "inflated valuations."
- That would leave "Mr and Mrs. 401(k) holding the bag," the ASA wrote in a March letter addressed to the SEC as cited in the Wall Street Journal.
- However, in the Wednesday order, the SEC said the NYSE's direct listing plans already had sufficient investor protections in place.
- The changes come at a time when U.S. crypto exchange Coinbase is said to be preparing to list on the U.S. stock market sometime in early 2021 with preference given to a direct listing.
- On Wednesday, the SEC also announced changes to the rules for accredited investors, slightly expanding the pool of Americans who can invest in private securities.
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