SEC Approves NYSE Plan for Direct Listings

On Tuesday, the US Securities and Exchange Commission (SEC) approved a proposed plan by the New York Stock Exchange (NYSE) to let companies raise capital through direction listing.

The plan will allow companies that opt for a direct list to save on bank underwriting fees and raise capital by issuing new shares and selling them to public investors on the first day of trading.

Prior to the SEC adopting the rule, companies could only sell existing shares to public market investors, which means their founders and early investors could cash out of their stakes, but the company couldn’t raise new capital.

The traditional IPO process involves an underwriter that works closely with the company throughout the IPO process, including deciding the initial offering price, helping with regulatory requirements, buying the available shares from the company, and then selling them to investors via their distribution networks.  The process includes investment banks, broker-dealers, mutual funds, and insurance companies. 

Prior to the IPO, the company and the underwriter partake in marketing/promoting the company to institutional investors to drum up interest in purchasing the soon to be listed stock. The underwriters also guarantee that a specific number of shares will be sold at the initial price, including buying any unsold shares.

These services provide guaranteed funds, interest in the stock, and regulatory securities, but it can be costly, ranging from 3% to 7% of the capital raised. That’s a big chunk of cash, considering that IPOs often raise hundreds of millions of dollars. 

While the guarantees provided may be good for some companies, others may see more benefits in a direct listing.

A direct listing allows a company to sell shares directly to the public without the help of any intermediaries. Companies will also have the option to sell new shares through the direct listing, raising capital directly from the market. 

Basically, a direct listing will:

  1. remove the underwriter fees, lowering the offering costs for the company;
  2. let the market demand control the price, so all buyers and sellers are treated equally;
  3. eliminate restrictions on when insiders can sell;
  4. and give companies the option to raise capital by registering shares to sell directly into the market through the IPO.

The downside is:

  1. less “promotion” of the IPOs;
  2. no guarantees for specific amounts of stock sold;
  3. less regulatory security.

A direct listing would seem like the superior option for companies that don’t need to raise additional capital or companies looking to save money on offering costs. 

The changes come at a time when companies have been scrambling for another IPO alternative. SPACs (mergers with blank-check companies) have boomed this year, shattering all sorts of records, because they allow companies to raise capital from investors and go public without the typical IPO process.

This is a welcome change for many, as in recent months, IPOs have received lots of criticism for being extremely miss-priced, often seeing massive one-day pops in price. When that happens, the company loses out on hundreds of millions of dollars in gains while pre-IPO shareholders make out like bandits. A direct offering should help level the playing field for everyday investors and provide the opportunity for companies to net more capital through the offering.

The NYSE first floated its proposal for the direct listing in December 2019. Its main rival, the Nasdaq Stock Market, is also seeking to let companies raise capital through direct listings, but Nasdaq’s plan hasn’t yet been approved by the SEC.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit  This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
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