SEC Considers Direct Listings As IPO Alternative

The U.S. Securities and Exchange Commission is considering allowing companies to sell primary shares to investors in direct listings as an alternative to the initial public offering (IPO), according to Financial Times reported Thursday (Oct. 17).

Citing unnamed sources, the FT reported that the SEC held an exploratory discussion to considering allowing corporates a different fundraising avenue. Compared to a traditional IPO, which is used to raise new funds, a direct listing involves a company placing existing shares up for sale when existing investors wish to sell their stakes, the publication explained.

One source said SEC corporate finance division Director William Hinman was present at the meeting, though noted that discussions are in the early stages.

The SEC declined to comment. but told the publication that it has an “open door for issuers and their advisers if they have questions in general, and in particular about novel offerings or procedures.”

Sources said that the discussions focused on investor disclosure requirements of a potential new direct listing option, with reports pointing to potential differences from IPO prospectuses which require listing companies to provide a range of share prices ahead of their listing.

Reports pointed to recent IPO failings as one possible factor behind the SEC’s interest in direct listings. Most notably, workspace sharing startup WeWork had to cancel its IPO, while other lackluster debuts came from Peloton and SmileDirectClub.

According to unnamed sources, Airbnb is reportedly considering a direct listing that would be the largest on record. Slack and Spotify — both of which used the direct listing model — and the New York Stock Exchange are all slated to attend a direct listing conference held by Morgan Stanley later this month, reports noted, signaling more potential interest in this strategy.

Last month the Financial Times said Silicon Valley banks and investors have been garnering up support for direct listings following the success of Slack and Spotify.