Securities Regulation and Corporate Governance


Securities Regulation and Corporate Governance > Posts > NYSE's Attempt to Allow Primary Offerings in Direct Listings Hits a Snag
NYSE's Attempt to Allow Primary Offerings in Direct Listings Hits a Snag

​Direct listings have emerged as one of the new innovative pathways to the U.S. public capital markets, thought to be ideal for entrepreneurial companies with a well-recognized brand name or easily understood business model. We have also found it attractive to companies that are already listed on a foreign exchange and are seeking a dual listing in the United States. Because direct listings are currently limited to secondary offerings by existing shareholders, they are not an attractive option for companies seeking to raise new capital in connection with a listing. 

On August 26, 2020, the SEC approved a proposed rule change by the NYSE that, when effective, would permit primary offerings in connection with a direct listing for the first time (available here). This primary option is expected to increase the number of companies that find direct listings attractive, although it will not serve as a replacement for IPOs generally.

On August 31, the Council of Institutional Investors (CII) notified (available here) the Securities and Exchange Commission of its intention to file a petition for the SEC's Commissioners to review the August 26 order approving the NYSE's proposed rule change. In prior letters to the SEC, CII objected to the proposals to allow primary offerings, arguing that they would limit investors' legal recourse for material misstatements in the prospectus for the offering and would not generate sufficient liquidity for a trading market in the securities to develop after the listing.

In response to CII's objection, on September 1, the SEC stayed its approval of the NYSE's proposed rule changes until the SEC orders otherwise (available here). An NYSE spokesperson stated shortly thereafter the exchange's intention to ask the SEC to lift the stay of its approval immediately. CII must file a petition for review, pursuant to the SEC's Rules of Practice, containing further information within five days of its notice to the SEC.

Primary offerings through direct listings pose new challenges and questions, but nonetheless have potential to expand access to the U.S. public markets. Any company considering 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. Gibson Dunn will also update its Current Guide To Direct Listings (available here) as the rules and practices evolve.​

Thank you to Houston associate Evan Shepherd for his assistance with this post.

 ‭(Hidden)‬ Blog Tools

© Copyright 2019 Gibson, Dunn & Crutcher LLP.
Attorney Advertising. Prior results do not guarantee a similar outcome. All information provided on this site is for informational purposes only, does not constitute legal advice, is not confidential, and does not create an attorney-client relationship. Statements and content posted to this site do not represent the opinion of Gibson Dunn & Crutcher LLP ("Gibson Dunn"). Gibson Dunn makes no representations as to the accuracy, completeness, currentness, suitability, or validity of any information on this site and will not be liable for any errors or omissions therein, nor for any losses, injuries, or damages arising from its display or use.