That was fast. Earlier this week, I wrote that the SEC had rejected the NYSE’s proposed rule change to permit companies to sell newly issued primary shares via a direct listing – only 10 days after the exchange had submitted it. The SEC hasn’t made any public statements about why it rejected the proposal, so we still don’t know for sure whether it was because the Commission is fundamentally opposed to direct listings, believes that rulemaking is required, or if there was just something it wanted the NYSE to tweak. But the NYSE signaled that it would continue working on this initiative, and it’s now submitted a revised proposal. As a Davis Polk memo explains, it’s pretty similar to the original:
The new rule change proposal is substantially similar to the proposal the NYSE filed in November, except that issuers can meet the NYSE’s market value requirement by selling $100 million of shares (rather than $250 million under the initial proposal). Consistent with the initial proposal, the revised rule change proposal would provide the same flexibility for an issuer to sell newly issued primary shares into the opening auction in a direct listing, and would also delay the requirement that an issuer have 400 round lot holders at the time of listing until 90 trading days after the direct listing (subject to meeting certain conditions).
Stay tuned as to whether this revision addresses the SEC’s concerns. As Broc wrote when the original proposal was submitted, some are worried about investor protection issues for listings that occur outside of the traditional IPO process – but others note that there are a number of misconceptions about direct listings, including that a direct listing is even a “capital-raising” activity. We’re continuing to post memos in our “Direct Listings” Practice Area.
-Liz Dunshee, TheCorporateCounsel.net December 13, 2019
