The new type of direct listing could appeal to Silicon Valley venture capitalists. Traders on the floor of the NYSE before the Slack Technologies IPO in 2019.
Photo: Richard Drew/Associated PressRegulators have approved a proposal from the New York Stock Exchange to let companies raise capital through direct listings, a decision that creates a less-expensive alternative to the traditional initial public offering.
In an order posted online Wednesday, the Securities and Exchange Commission approved the plan for the NYSE to create a new type of direct listing, in which companies can issue new shares. Previously, companies had only been permitted to use the process for existing investors to sell shares.
In a direct listing, a company floats its shares on a stock exchange, but without hiring banks to underwrite the transaction as in an IPO. In addition to saving on bank fees, the process allows companies to avoid some customary restrictions of IPOs, such as lockup periods that prevent insiders from selling their stock for a set period.
Palantir Technologies Inc., a data-analytics company co-founded by famed investor Peter Thiel, said this week that it would use the unconventional process to go public, following a path pioneered by music-streaming giant Spotify Technology SA in 2018.
The primary benefit of the previous format was to let a startup’s founders and early investors cash out of their stakes, but companies couldn’t use the process to raise capital. Effectively, that made direct listings viable for only a small number of cash-rich startups, since most companies go public with the goal of raising fresh capital.
Wednesday’s decision by the SEC could make direct listings a more popular alternative to the traditional IPO. With the NYSE’s new type of direct listing, a company will be able to issue new shares and sell them to public investors in a single, large transaction on the first day of trading, much like the first trade in an IPO.
Potentially, a company could do both the old and new kind of direct listing together, allowing existing investors to sell their shares while also selling newly issued shares to the public.
“This is not intended to displace the IPO, but to provide a new pathway to the public markets that might be better suited to some companies,” NYSE vice chairman and chief commercial officer John Tuttle said in an interview. The NYSE is owned by Intercontinental Exchange Inc.
The new type of direct listing could appeal to Silicon Valley venture capitalists who have long complained about underwriting fees and other costs associated with IPOs. Such critics say Wall Street banks shortchange startups during IPOs by buying their shares and then turning around and selling them to the public at a higher price. That means companies can’t fully benefit from a jump in their stock price on the first day of trading, the critics say.
Palantir’s debut, which could happen on the NYSE as soon as next month, would be the highest-profile direct listing since Slack Technologies Inc. went public in June 2019. Interest in direct listings has cooled this year as fallout from the coronavirus pandemic has forced many firms to struggle for capital. Palantir, which was valued at $20 billion in a 2015 funding round, doesn’t plan to raise capital with its listing.
The SEC approved the NYSE’s plan despite objections from some groups that warned it could harm investors by letting companies circumvent the protections of the IPO process.
The Council of Institutional Investors, a group of pension funds and other big money managers, asked the SEC to reject the plan in a July letter. The council expressed worries that companies going public via direct listings would be able to dodge shareholder lawsuits, due to quirks in U.S. securities laws that were written with more traditional share offerings in mind.
Other critics warned that investors could get burned by price volatility after direct listings. Unlike in an IPO, in a direct listing there is no bank acting as a “stabilization agent” to prop up the stock if it falls sharply after its debut.
“Direct listings without the appropriate protections could provide a strong incentive and an easier path for company insiders to cash out at inflated valuations, leaving ‘Mr. and Mrs. 401(k)’ holding the bag,” the American Securities Association, a brokerage group, told the SEC in a March letter.
The SEC said in Wednesday’s order that the NYSE’s direct-listing plan had sufficient investor protections. It also said direct listings offered investors some advantages over IPOs, such as giving a broader array of investors the opportunity to get in on a stock’s debut at the initial price.
Earlier this week, the NYSE’s main rival, Nasdaq Inc., released its own proposal to let companies raise capital through direct listings. Nasdaq’s plan is broadly similar to the NYSE’s, but its proposed rules would allow a company’s shares to start trading within a wider price range than a direct listing on the NYSE.
Nasdaq’s plan must be approved by the SEC to take effect. The NYSE first proposed to create the new kind of direct listing in November, and the exchange revised the plan several times before winning approval.
Write to Alexander Osipovich at alexander.osipovich@dowjones.com
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
"plan" - Google News
August 27, 2020 at 07:47AM
https://ift.tt/3gAryHs
NYSE’s Plan for New IPO Alternative Wins Green Light From SEC - The Wall Street Journal
"plan" - Google News
https://ift.tt/2un5VYV
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update
Bagikan Berita Ini
0 Response to "NYSE’s Plan for New IPO Alternative Wins Green Light From SEC - The Wall Street Journal"
Post a Comment