The New York Stock Exchange has invited the SEC to introduce permission to companies to enter the market through direct listing. The Wall Street Journal reports this step will be taken to attract additional capital.
At the moment, companies are unable to raise additional funds. The exchange suggests that they should allow selling shares not only to shareholders, but also to the companies themselves. The idea can primarily attract venture investors who want to abandon the traditional IPO model in favor of direct listing. Thus, it will be possible to avoid paying large commissions and escape the period in which shareholders are prohibited from selling their shares the first time after the public offering.
Unlike IPO, direct listing allows not to issue new shares, but sell those that are already held by shareholders. In the traditional model, offering of securities on the stock exchange is impossible without underwriters represented by investment banks. Direct listing will allow getting rid of intermediaries, and greatly simplify the procedure for entering the market.
The procedure, which the NYSE proposes to introduce, will allow companies not only to issue new shares, but will also give owners the opportunity to sell securities they already have got from the first day of trading.
Companies have already entered the market using direct listing. Spotify was the first to conduct listing last year. This year, Slack has also carried out a direct listing. The balance sheet of both companies had a sufficient amount of funds to generate investors’ interest, without the need to attract additional capital.
The material was prepared with the participation of Katya Wilson,
a leading analyst of the brokerage company UFT Group