The New York Stock Exchange (NYSE) wants to amend rules so that companies can go public through a direct listing, and raise capital from public market investors at the same time.
As it stands now, companies cannot raise capital with a direct listing. This rule change would allow firms to follow the path taken by Spotify in 2018 and Slack in 2019. Instead of issuing new shares, they allowed existing private shareholders to sell stock to public investors. Both companies were able to do this due to sufficient capital on their balance sheets. Since many companies go public to raise money, this new route can attract more businesses to a direct listing.
“The proposed change would allow a company that has not previously had its common equity securities registered under the act to list its common equity securities on the exchange at the time of effectiveness of a registration statement, pursuant to which the company will sell shares in the opening auction on the first day of trading on the exchange,” the NYSE wrote in its filing.
Direct listings have received more attention as companies look toward alternatives to the traditional initial public offering (IPO). Last month, Benchmark General Partner Bill Gurley hosted a seminar on direct listings in San Francisco, which included sessions with Spotify and Slack executives. Morgan Stanley and Goldman Sachs have also held information events on direct listings.
“These proposed NYSE rules will allow companies to take advantage of the benefits of a direct listing while, at the same time, taking away the biggest disadvantage of a direct listing: the inability to raise capital,” said Ran Ben-Tzur, a capital markets expert and partner of law firm Fenwick & West, according to CNBC. “If approved, these rules will likely fundamentally change how technology companies go public.”
The NYSE said in the filing that, “the proposed amendments would not impose any burden on competition, but would rather increase competition by providing new pathways for companies to access the public markets.”