On February 2, 2018, the SEC approved the New York Stock Exchange's (NYSE) proposed rule amendments to facilitate non-IPO share offerings, or "direct listings," benefitting companies that wish to become public but do not need to raise capital.
A direct listing is an alternative to a traditional initial public offering (IPO). In a traditional IPO, the issuer engages one or more financial institutions to underwrite the offering and to assist the issuer in procuring purchasers for the shares and in pricing the offering. In a direct listing, however, shares are listed directly on an exchange without the involvement of underwriters.
Under the old rules, a company could directly list its shares on the NYSE only if the market value of the company's publicly held shares was at least $100 million based on an independent third-party valuation and the most recent trading price for the company's shares in a trading system for unregistered securities (the "Private Placement Market").
The amended rule eliminates the requirement that a company have common stock trading on a Private Placement Market. Instead, a company can now directly list on the NYSE if an independent third-party valuation determines that the market value of the company's publicly held shares is at least $250 million. The company must have an effective registration statement on file with the SEC and comply with other applicable NYSE listing requirements.
The new rules also:
- provide standards to determine whether the third party providing the valuation is independent;
- specify designated market-making requirements for directly listed shares in the event that the shares do not have a history of Private Placement Market trading;
- provide for a reference price for directly listed shares; and
- authorize the NYSE to declare a regulatory halt in securities that are the subject of an initial pricing on the NYSE and have been neither traded on an exchange or in an over-the-counter market immediately before pricing.
On February 28, 2018, Spotify Technology S.A. ("Spotify"), best known for its music streaming service, filed a Form F-1 in reliance on the new direct listing rules. Spotify has chosen to forego a traditional IPO despite the risks associated with a direct listing. These risks include an increased possibility of volatile early trading resulting from the lack of price discovery due to the fact that there are no underwriters to step in and stabilize the price. Spotify's direct listing will be a bellwether for whether direct listings can be a viable alternative to traditional IPOs.
The rule change is available at:
The NYSE information memorandum describing the rule change is available at:
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