Following the SEC’s rejection last week of its proposed rule change on direct listings, the NYSE filed a revised rule change proposal with the SEC yesterday. The new rule change proposal is substantially similar to the proposal the NYSE filed in November, except that issuers can meet the NYSE’s market value requirement by selling $100 million of shares (rather than $250 million under the initial proposal). Consistent with the initial proposal, the revised rule change proposal would provide the same flexibility for an issuer to sell newly issued primary shares into the opening auction in a direct listing, and would also delay the requirement that an issuer have 400 round lot holders at the time of listing until 90 trading days after the direct listing (subject to meeting certain conditions).  See our previous client memo for more information.

The NYSE’s quick turnaround of its rule proposal following the SEC’s rejection of last week is indicative of its stated commitment to make direct listings available to a broader constituency, but does not fundamentally alter the model the NYSE has proposed.  As we have previously noted, while the proposed rule change is an attempt to solve two key issues related to direct listings—namely the inability to raise capital and the minimum holder requirements—there continue to be other potential limitations to direct listings.  Private companies considering their options should consult with counsel and their investment banking advisors to fully understand the benefits and costs of this new model.

If the SEC approves the proposal, the rule change is not expected to take effect until at least 45 days after its publication in the Federal Register.

This post comes to us from Davis, Polk & Wardwell LLP. It is based on the firm’s memorandum, “NYSE Files Revised Direct Listing Proposal,” dated December 12, 2019, and available here.