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SEC didn’t allow organizing direct listing instead of IPO

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SEC didn’t allow organizing direct listing instead of IPO
December 10
13:00 2019

We already wrote that the New York Stock Exchange (NYSE) had requested the Securities and Exchange Commission (SEC) to create a new type of direct listing, which could become an alternative to the IPO.

The NYSE representative informed that the SEC had rejected the offer. The exchange, however, is not going to give up and plans to continue sending requests to the Commission.

At the moment, companies are not deprived of the opportunity to become public through direct listing. This method, however, does not make possible to attract additional capital. The NYSE idea is unique because not only shareholders but the companies themselves will be able to sell the securities.

In contrast to the traditional IPO, direct listing doesn’t imply issuance of new shares by companies. Shareholders can only put their securities on the open market.

The NYSE model suggests a scenario in which the companies will have a chance to issue new shares that can be offered to market participants on the first day of trading. Moreover, during such a process the shareholders will have an opportunity to sell already owned (secondary) shares.

Spotify and Slack are the companies that used the direct listing method to enter the public market. Unfortunately, at the moment this method is not suitable for every company, since additional capital is not attracted. Therefore, in order to motivate investors, a company must have a considerable amount of its own available funds.

 

The material was prepared with the participation of Katya Wilson,
a leading analyst of the brokerage company UFT Group

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