NYSE Amends Proposal to Allow Issuers to Raise Capital in Direct Listings

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On June 22, 2020, the New York Stock Exchange (“NYSE”) submitted an amended proposal to the Securities and Exchange Commission (“SEC”) that would modify existing NYSE rules relating to direct listings in order to permit companies to conduct concurrent primary offerings.  As we previously blogged, on December 6, 2019, the SEC rejected a broader NYSE proposal that would have allowed issuers to simultaneously list a class of their equity securities on the exchange through a direct listing and also raise capital by issuing shares to investors.  Under the amended proposal, an issuer would qualify for a NYSE direct listing with a concurrent public offering if it sells at least $100 million in market value of shares in its opening auction.  If an issuer sells less than $100 million in its opening auction, the issuer would still qualify if the market value of publicly-held shares (excluding shares held by insiders) immediately prior to the stock exchange listing taken together with the market value of shares the issuer sells in its opening auction totals at least $250 million with such market value calculated using a price per share equal to the lowest price of the price range set in the issuer’s registration statement.  The new auction process would require a direct listing issuer to disclose a price range and the number of shares to be sold in its registration statement and the opening auction price would need to be within the disclosed price range.  Importantly, officers, directors and significant shareholders would be permitted to purchase shares in the issuer’s opening auction in order to meet the requirement.  The NYSE believes the enhanced publicly-held shares requirement (much higher than the NYSE’s minimum $40 million requirement for a traditional underwritten initial public offering) would ensure an adequate public float and liquid trading market for the issuer’s securities.  Unlike the prior NYSE proposal, issuers would be immediately subject to all applicable initial listing requirements, including the requirement to have at least 400 round lot holders.  On June 24, 2020, the SEC issued a notice requesting public comment on this amended proposal.  The SEC’s notice can be found here.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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