A Direct Listing is an option for companies that want to enjoy the benefits of a public listing without going through the traditional IPO process. Direct Listing candidates are well-capitalized with no need to raise new capital, and have generally raised significant capital in private markets, giving them a large number of shareholders. All of these holders are able to monetize their shares on day one. Direct Listings also allow the company to be fairly valued by the public markets, rather than setting a price based on investor interest during a roadshow.

A Direct Listing is the listing of a private company without an underwritten public offering or issuance of new shares. Unlike a traditional IPO, a Direct Listing:

• Does not require the issuance of new shares
• Has no stabilization agent
• Has a reference price instead of an IPO price
• Shareholders can trade immediately after listing

A DMM is a unique market participant that exists only on the NYSE. These traders are subject to rigorous obligations unique to the NYSE to maintain a fair and orderly market in the securities they trade and facilitate the open and close of trading. Their combination of human oversight and best-in-class technology leads to better trading and cost savings for issuers listed on the NYSE.

The DMM has two key roles in a Direct Listing. The first is opening the stock at the right price, which involves a thorough price-discovery process. The second is maintaining price continuity with reasonable depth and minimizing the effects of temporary disparity between supply and demand by supplying their own capital, both at the open and through the early days as a public company. Given the absence of a stabilization agent, both of these roles are critical.

An IPO price is determined by gauging investor interest throughout the roadshow, and is determined by underwriters together with the company. The reference price for a Direct Listing is set by the NYSE and based on many factors, including private valuations and sustained trading in private markets. No shares actually change hands at the reference price -- it’s simply a starting point for the price-discovery process.

The combination of human judgment and technology is critical to the success of a direct listing. The price discovery process and capital commitment from the DMM firms doesn’t exist on other exchanges. The NYSE has always been home to innovators, and we pioneered the concept of the Direct Listing after several years of work with issuers, the SEC and advisors.

The new proposal is aimed at (a) enabling more companies to use a Direct Listing and (b) allowing for an optional capital raise. Under the new proposal:

A company can qualify for a direct listing with at least 400 round lot holders and:

• a primary capital raise with public market value of at least $100M OR
• a $250M total public float or a combined aggregate of a primary capital raise and public float of at least $250M

A company with less than 400 round lot holders can be given a grace period to meet the minimum round lot requirement if it:

• has a public market value of at least $350M
• does a primary capital raise with a public market value of at least $250M
• has a combined aggregate of a primary capital raise and public float of at least $350M

On December 20, 2019 the NYSE filed a proposed rule change SR-NYSE-2019-67 that would expand accessibility of direct listings with the SEC.

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