In a new process called primary direct floor listing, the U.S. Securities and Exchange Commission (SEC) recently implemented a rule that will help companies raise capital through direct listings.
A direct floor listing will enable companies to issue new shares to the public via an auction that matches buy and sell orders, establishing the company’s offering price. This process differs from the traditional direct floor listing method, which was exclusive to existing investors and did not allow the company itself to raise funds via the offering.
The new listing method serves as an alternative to the traditional initial public offering process and eschews formal marketing and shareholder lock-up. Additionally, the new process doesn’t require underwriters to price shares.
“Allowing for multiple pathways for private companies to achieve exchange listing would encourage more companies to participate in public equity markets and provide investors a broader array of attractive investment opportunities,” explained a commenter to the SEC’s rule change.
In some ways, direct floor listings will benefit the company, rather than the shareholders. For example, after going public, first day gains will go to the company itself, rather than new investors.
Minimum market value requirements for direct floor listings, which are imposed to ensure sufficient liquidity, are $100 million and, for primary direct floor listings, $250 million. This is more than double the minimum value requirement for IPOs, which is $40 million.
According to the Financial Times, two technology companies have already expressed a desire to take advantage of direct listings. Both Palantir and Asana have filed paperwork with the SEC for direct listings.
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