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Nasdaq and NYSE Direct Capital Raising Listing Rules Meet Resistance

November 2nd | 2020



The Council of Institutional Investors (CII), recently penned a comment letter on Nasdaq’s proposal to adopt listing rules and order types that would support direct listing with a capital raise. CII opposed NYSE’s similar proposal, and this comment letter proceeds along similar lines. Direct listings make it easier for private companies to bypass the need for an “initial public offering” if they want to go public and list their shares on an exchange like NYSE or Nasdaq.


The alternative to such an IPO is a “direct listing,” which allows existing shareholders of a private company to sell their existing shares to the public, thus reducing the role of underwriters and avoiding post-IPO lockups on the ability of company insiders to sell shares. CII’s letters do not dispute the merits of direct listings, but rather are concerned with whether they erode investor protection because it may be difficult to tie shares purchased to a registration statement, which courts have required plaintiffs to do in order to proceed in shareholder suits.


The SEC has allowed direct listings for companies that do not raise capital in the process for some time. In fact, Spotify Technology SA chose this route to go public in 2018 as did Slack Technologies Inc. in 2019. Capital raising listing proposals from the exchanges seem to have had a bumpier road, the SEC declined a similar proposal by NYSE in December 2019 and is initiating proceedings on NYSE’s second attempt; and Nasdaq’s proposal appears to raise similar concerns, so it may take a similar path.

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