The SEC on Wednesday approved a proposal from the New York Stock Exchange to let companies raise capital through direct listings as opposed to initial public offerings.
Unlike IPOs, direct listings allow companies to participate in the stock market without selling new shares and with fewer restrictions and fees. Before its order Wednesday, the Securities and Exchange Commission did not allow companies to raise new capital while going through the direct listing process.
Under the NYSE proposal, the most recent version of which was filed in June, a company that has not previously had its common equity securities registered with the SEC is allowed to list those common equity securities on the exchange upon the effective date of a registration statement.
The company will sell shares itself in the opening auction on the first day of trading on the exchange, according to the NYSE proposal.
The NYSE will retain the existing standards for determining whether a company has met its market value of publicly held shares listing requirement. It will continue to determine that a given company has met the $100 million aggregate market value of publicly held shares requirement based on a combination of both an independent third-party valuation and the most recent trading price for the company's common stock in a trading system for unregistered securities operated by a national securities exchange or a registered broker-dealer.
In the absence of recent trading in a private market, NYSE will determine that a given company has met its market value of publicly held shares requirement if the company provides a valuation showing a market value of publicly held shares of at least $250 million, it said in the proposal.
In a comment letter filed last month, the Council of Institutional Investors criticized the NYSE proposal and said it would lessen investor protections. "Investors that purchase shares in a direct listing may have fewer legal protections than if they purchased the shares in a regular IPO because they may not be able to trace their shares to a registration statement and determine the amount of damages based on an offering price," said Amy Borrus, CII executive director, in an email Thursday.
The SEC in its order said it does not believe that the NYSE proposal "poses a heightened risk to investors, and finds that the proposed rule change is consistent with investor protection."
A NYSE representative could not immediately be reached for comment.
NYSE competitor Nasdaq filed its own direct listing proposal with the SEC on Monday.