Dec 23, 2020 - Economy

SEC finally approves NYSE's direct listings with capital raise

Kia Kokalitcheva

Illustration of the Wall Street bull stuffed full of cash. — Illustration: Aïda Amer/Axios

The U.S. Securities and Exchange Commission finally approved on Tuesday a rule change that will allow companies doing direct listings on the New York Stock Exchange to simultaneously raise primary capital.

The move follows pushback from an industry group that complained the change would decrease investor protections and make it harder to sue over mistakes.

Why it matters: Despite the surge in interest in the last couple of years, direct listings have struggled to appeal to a wide swath of companies since many still need to raise capital when going public.

Background: Spotify's direct listing in 2018, which allowed the company's shareholders to begin trading their shares on the stock market, sparked growing conversations over the need for alternatives to the traditional initial public offering.

Common arguments have included the need for better pricing mechanisms because many companies find themselves with a first-day closing price much higher than the IPO price, also known as "leaving money on the table."
Lock-up periods preventing employees and some other shareholders from selling for months can also be viewed as another shortcoming of the traditional IPO process.

Between the lines: Some critics have also taken aim at the fees banks collect for underwriting IPOs, which the NYSE's new listing option eliminates.

Yes, but: Banks have still been highly involved in the handful of direct listings so far, collecting millions in advisory fees.

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SEC finally approves NYSE's direct listings with capital raise

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