The Securities and Exchange Commission (SEC) has approved a proposal by the New York Stock Exchange (NYSE) to facilitate listing on the NYSE without a prior underwritten public offering. Section 102.01B of the NYSE Listed Company Manual (Manual) currently provides that a listed company must demonstrate at the time of listing an aggregate market value of publicly held shares of either:
- $40 million for a company that lists either at the time of its initial public offering, as a result of a spin-off or as an affiliate of an already-listed company, or
- $100,000,000 in all other circumstances
For this valuation, the NYSE relies on representations from the company’s underwriter, investment banker or other financial adviser. To value shares being listed “directly,” without an underwritten public offering, the NYSE relies on a combination of (i) an independent third-party valuation and (ii) the most recent trading price of the company’s common stock in the private placement market. Even where a company satisfies the valuation threshold, Footnote E of the Manual provides that direct listing is granted only “on a case-by-case basis.”
In June 2017, the NYSE proposed an amendment to Section 102.01B, which it amended several times over the next few months. The current proposal provides for direct listing without a valuation from the private placement market, provided that the company can produce an independent valuation of at least $250 million. In its proposal, the NYSE explained that the requirement of a valuation at least two and a half times the $100 million standard “will give a significant degree of comfort that the market value of the company’s shares will meet the standard upon commencement of trading on the Exchange.”
The NYSE’s proposal also provides criteria for what constitutes an independent valuation. The valuation agent or its affiliates cannot (i) own more than 5% of the class of securities to be listed, including any right to receive any such securities exercisable within 60 days, (ii) have provided investment banking services to the listing applicant within the 12 months preceding the date of the valuation or (iii) have been engaged to provide investment banking services in connection with the proposed listing, any related financings or other related transactions.
In addition to these requirements, a company seeking a direct listing on the NYSE must have an effective Securities Act registration statement with the SEC that covers resale of at least some of its outstanding shares. It must also satisfy the NYSE’s generally applicable listing criteria regarding corporate governance, disclosure obligations and other requirements.
The NYSE explained that its proposal is meant for companies that are clearly large enough to be suitable for listing on the NYSE but (i) do not have their securities traded in the private placement market or (ii) do not have enough trading in the private placement market to provide a reasonable basis for valuation. Spotify, a large technology company that provides streaming music services, is one prominent company that has announced its plans to skip a traditional initial public offering and list directly on the NYSE. It remains to be seen whether other private issuers will take advantage of the newly approved NYSE rules.
The SEC’s approval of the NYSE rule can be found here.