On December 3, 2019, Gibson Dunn published A Current Guide to Direct Listings discussing, among other things, a proposal submitted to the U.S. Securities and Exchange Commission (SEC) on November 26, 2019 by the New York Stock Exchange (NYSE) that would permit a privately held company to conduct a direct listing in connection with a primary offering, potentially creating a new on-ramp to the public capital markets in the United States.
On December 6, 2019, an NYSE spokesperson reported that the SEC had rejected the NYSE’s proposed rules. At the time of this posting, the NYSE’s proposal no longer appears on the NYSE’s rulemaking website or the SEC’s counterpart, although it does remain publicly available, and the SEC has not commented on why the NYSE proposal was rejected.
Under the rejected proposal, companies hoping to conduct a primary offering while listing pursuant to the NYSE’s direct listing standards would have been required to (i) sell at least $250 million in equity in the opening auction on the first day of listing or (ii) if such listing company sold less than $250 million in market value of shares in the opening auction, the NYSE would require that the aggregate of the market value of publicly held shares immediately prior to listing and the market value of shares sold by the company in the opening auction be at least $250 million. The proposal also provided for a new compliance period to its requirement that a listing company have 400 round lot shareholders, or the “Distribution Standard Compliance Period.” See A Current Guide to Direct Listings for more information.
The NYSE has said that it remains “committed to evolving the direct listing product.”
It is possible that the NYSE will revise its proposal in consultation with the SEC and other market participants, consistent with the NYSE’s efforts to pass its initial-direct listing rules in early 2018. In the 2018 rule-making process, the NYSE quietly amended and restated its proposal to remove only language that would have allowed a company to list immediately upon effectiveness of an Exchange Act registration statement, without any concurrent Securities Act Registration.The SEC followed by granting accelerated approval of the NYSE’s proposed rule change, which was otherwise identical.
Although the form and content of any final rules are not settled, the NYSE’s proposal to extend the universe of companies for whom a direct listing may be a viable option is a sign of the progressing times. As U.S. companies raise increasingly large amounts of capital in the private markets, the public capital markets need to provide a wider variety of means for a private company to enter the public capital markets and provide liquidity to existing shareholders. Any company considering an entry to the public capital markets through a direct listing is encouraged to carefully consider the risks and benefits in consultation with counsel and financial advisors. Members of the Gibson Dunn Capital Markets team are available to discuss strategy, options and considerations as the rules and practice concerning direct listings evolve.