NYSE Aiming To Enable Companies To Raise Capital With Direct Listings

By Amit Chowdhry ● November 29, 2019
  • The New York Stock Exchange (NYSE) said it filed with the SEC to enable companies going public to raise capital through a direct listing

Earlier this week, The New York Stock Exchange (NYSE) said it filed with the U.S. Securities and Exchange Commission to enable companies going public to raise capital through a direct listing as an IPO hybrid model. There has been criticism from venture capital investors about the traditional IPO process.

“Will this displace the traditional IPO? No, but is it another pathway we are providing companies to come to the public markets and to have investors participate and (have) growth opportunities? Yes,” said NYSE Vice Chairman and Chief Commercial Officer John Tuttle in a telephone interview with Reuters.

When a company goes through a direct listing, it does not raise a new set of funds. Essentially, existing investors are able to monetize their shares.

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Benchmark Capital partner Bill Gurley has been a major advocate of direct listings as he believes banks have been “fleecing” companies by pricing shares lows so that the prices substantially jump on the first day.

Spotify popularized the concept of a direct listing last year. And Slack also set up its public debut with a direct listing this year. While both had successful IPOs, the share prices of both companies have been battered over the last year. Slack’s stock price has been taking a hit as Microsoft Teams has been growing in popularity and Spotify is facing intense competition against products offered by Apple, Google, and Amazon.

Another advantage of direct listings is that it avoids restrictions on stock sales by insiders like venture capitalists. Plus direct listings cost much less than an IPO. Banks charge for high underwriting fees and to stabilize share prices.

With a direct model, primary shares are sold in the first trade to a wide variety of buyers. And stock owned by existing investors (secondary shares) can be sold during the first day of trading.

Latham & Watkins partner Greg Rodgers told Reuters that direct listings would be a tempting option for many companies, but it would not disrupt the traditional IPO process for a while.

“For the foreseeable future, issuing primary capital in this way will be quite novel,” said Rodgers via Reuters.

Photo Credit: NYSE