In August 2020, following a lengthy on-again/off-again process, the SEC approved a proposed New York Stock Exchange rule that would allow companies to go public through a primary “direct” listing – a sale directly to the public, without underwriters, underwriting commissions, or roadshows, among other things. However, just a few days later, the SEC stayed the approval because it had gotten notice of petition to review the approval.
Then, on December 22, 2020, following the cancellation of the open meeting at which it was to consider the rule a second time, the SEC approved the NYSE’s proposal by a 3-2 vote, with the two Democratic appointees dissenting, as was common in 2020.
In general terms, a company that seeks to effect a direct listing must satisfy the NYSE’s requirement to have at least $100 million aggregate market value. However, the new rule will consider a company to have met the requirement (a) if it sells shares with $100 million or more in the opening auction on the first day of trading, or (b) where the market value of publicly held shares is less than $100 million, if the aggregate market value of the shares the company is to sell in the opening auction, together with the shares eligible for inclusion as publicly held shares immediately prior to the listing, is at least $250 million. The direct listing can include sales by selling shareholders, and officers, directors, and 10%+ holders can purchase shares sold in the opening auction by the company or by selling shareholders.
As suggested by its turbulent history, the rule has generated quite a bit of controversy. Proponents say it will reduce the costs and other complexities involved in a traditional IPO, while opponents say it will eliminate the investor protections afforded by a traditional IPO and, in fact, may result in the demise of the traditional IPO altogether.
Additional details will be discussed in an upcoming posting on the Securities Edge blog. In the interim, please direct any questions or observations to Gunster securities law and corporate governance practice leader Bob Lamm.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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