Global businesses can now raise funds on the biggest and most liquid stock exchange in the world, the New York Stock Exchange, through direct listings, without going through investment banks, known for often charging hefty fees.
In a statement released on its website yesterday, the U.S Securities and Exchange Commission approved the NYSE’s “direct” listing plan. Such a move is seen in many quarters as a major change in overhauling the U.S. initial public offering market, by allowing aspiring public firms to sell shares directly to intended investors.
Investment banks have for decades organized Initial Public Offers, marketed them to institutions, and supported the company’s stock via their trading desks.
The report further said:
- U.S SEC recognizes that a primary direct listing may not feature all of the services we have come to associate with traditional underwriting. This is certainly a change.
- However, we must keep in mind that these are still registered offerings, the anti-manipulation provisions of the federal securities laws will still apply, and there will be a variety of participants involved in the initial offering who will all be performing important gatekeeper functions, including an issuer’s financial adviser, which in the direct listings to date have been the same investment banking firms that are also involved in traditional initial public offerings (“IPOs”).
- In addition, as a company that chooses to utilize a primary direct listing would sell its shares directly on the exchange in an auction, investors would be able to participate in a single on-exchange transaction that would match buyers and sellers in a transparent manner.
- While this represents a different price discovery method compared to traditional IPOs, the proposed auction mechanism is designed to provide fair and efficient pricing for participating investors. Utilizing such an auction may have the additional benefit of increasing opportunities for investors.
The recent update in such rules followed by months of lobbying will help curb what investment experts call outrageous underwriter fees, a major barrier to a business looking to go public. Investor groups, however, warned that it could curb their protections, as investment banks perform due diligence on businesses going public.