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The Nasdaq exchange is permitted to host direct listings of companies going public without involving investment banks under a new ruling by the Securities and Exchange Commission (SEC).
Reuters reported: “Prominent venture capitalists like Bill Gurley have often criticized investment banks, which for decades have organized IPOs, for underpricing the offerings to help their clients reap large gains when the stock begins trading on the first day. The new IPO alternative could also potentially attract companies that are currently looking to go public via deals with special purpose acquisition companies (SPACs), given the recent slowdown in blank-check dealmaking due to a cooling off in investor appetite and tighter regulatory scrutiny around SPACs.”
In its 34-page decision approving Nasdaq’s request, the SEC commissioners stated, “… the proposed rule change is consistent with the protection of investors.”
Among the reasons the commissioners put forth in the ruling: “The proposed rule change will require all Direct Listings with a Capital Raise to be registered under the Securities Act, and thus subject to the existing liability and disclosure framework under the Securities Act for registered offerings.”
Another reason the commissioners gave for the approval: “Among other disclosures, these registration statements will require both bona fide price ranges and audited financial statements prepared in accordance with either U.S. GAAP or International Financial Reporting Standards as issued by the International Accounting Standards Board.”
Also: “The Commission further believes that Direct Listings with a Capital Raise will provide benefits to existing and potential investors relative to firm commitment underwritten offerings.”
And they wrote: “The proposed rule change therefore has the potential to broaden the scope of investors that are able to purchase securities in an initial public offering, at the initial public offering price, rather than in aftermarket trading.”
The SEC’s Nasdaq decision follows the commission’s December decision to let the New York Stock Exchange (NYSE) conduct direct listings.
PYMNTS reported in December that a report from consultancy PwC put the underwriting fee of using investment banks for IPOs in the range $25 million to $99 million at about 7 percent.
NYSE President Stacey Cunningham said in a prepared statement at the time: “This is a game-changer for our capital markets, leveling the playing field for everyday investors and providing companies with another path to go public at a moment when they are seeking just this type of innovation.”
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