Exchanges pitch alternative to IPOs for corporate fundraising
Nasdaq and the New York Stock Exchange are proposing to let companies raise capital through direct listings on their exchanges, in what could be a cheaper alternative to the initial public offerings pitched by Wall Street banks.
In a regulatory filing on Tuesday, NYSE put forward changes to its listing rules to allow fundraising in a direct listing, while Nasdaq told the Financial Times that it would be making a similar proposal soon.
So far direct listings have only been used to offer existing shares to public investors, resulting in lower fees than traditional IPOs. The music streaming company Spotify popularised the process with its NYSE listing in 2018, followed by the workplace chat service Slack in June this year.
The exchanges’ proposals look set to open a new front in the rivalry between them, as they compete for listings.
NYSE’s proposal, which is subject to approval by the Securities and Exchange Commission, set a minimum of $250m for “primary direct floor listings”, which it said would “provide an appropriately liquid trading market” and ensure newly public companies to continue meeting listing standards.
Its filing did not outline how companies would sell new shares using the direct listing procedure, however.
Nasdaq said in a statement it did not think NYSE’s proposal “fully considers the complexity of the issue”, but declined to elaborate.
The exchange told the FT it would propose rule changes of its own in the coming weeks following “extensive conversations with potential issuers and their advisers, financial institutions and the SEC about the possibility and mechanics”.
The moves by Nasdaq and NYSE come as start-ups and venture capitalists question the traditional IPO process.
“In a period of time where fewer companies have been going public [and] companies are waiting longer to go public, we wanted to make sure we’re continuing to create pathways for companies to the public markets,” said John Tuttle, vice-chairman and chief commercial officer of NYSE.
At least 100 companies and dozens of venture capital firms attended a direct listings conference organised by Benchmark Capital investor Bill Gurley last month. Mr Gurley has argued bankers are incentivised to underprice traditional IPOs, depriving companies of proceeds that instead accrue to short-term traders.
The FT reported last month the SEC held talks with representatives from Morgan Stanley, Nasdaq and the law firm Latham & Watkins on the matter, which were attended by William Hinman, director of the SEC’s division of corporation finance.
In response to Nasdaq’s criticism, Mr Tuttle said NYSE had been in “active dialogue with market participants, companies, regulators and others” about changes being made to direct listing procedures.
The SEC declined to comment on either NYSE’s filing or the expected proposal from Nasdaq.