SEC Approves NYSE Proposal to Allow Primary Direct Floor Listings

The SEC approved a NYSE rule change to provide alternative means - a primary direct listing - for exchange-listed companies to raise equity. The rule change allows "an issuer, at the time of an initial listing on the Exchange, to conduct a primary offering as part of a direct listing without conducting a firm commitment underwritten offering." The Commission "determined that NYSE has met its burden to show that the proposed rule change is consistent with the Exchange Act," and approved the NYSE’s proposed rule change, as modified by Amendment No. 2. The rule change amends direct listings under Chapter One of the Listed Company Manual.

As defined in the proposal, a primary direct floor listing would allow a company that has not previously registered its common equity securities to list them on the exchange at the effective time of a registration statement. The NYSE proposed that a company sell at least $100 million in market value of the shares in the opening auction to meet the applicable aggregate market value of publicly-held shares requirement. The NYSE suggested that to provide a suitable size for exchange listing and sufficient liquidity for the security, a company may conduct a primary direct floor listing in connection with a traditional initial public offering with a market value of publicly-held shares of $40 million. Additionally, a company must meet all applicable initial listing requirements for a primary direct listing, and allow an issuer to conduct a primary offering as part of a direct listing without conducting a firm-commitment underwritten offering.

Commissioners Allison Herren Lee and Caroline A. Crenshaw did not support the primary direct listings proposal, finding two problems: the lack of a firm-commitment underwriter and corresponding due diligence concerns, as well as "traceability" problems. Ms. Lee and Ms. Crenshaw stated that since underwriters are incentivized to provide an independent quality-check of the registration statement, the loss of the gatekeeper could lead to inaccurate and misleading disclosures. Additionally, Ms. Lee and Ms. Crenshaw expressed concern regarding the heightened challenges in recovering losses for false or inaccurate statements made in primary direct listings that involve concurrent sales. (See previous coverage on Ms. Lee's position as to the public market.)

Commissioner Elad L. Roisman noted that as registered offerings, primary direct listings are still subject to anti-manipulation provisions and include a variety of participants who will perform gatekeeper functions.