SEC rejects NYSE’s proposal to allow for fundraising in direct listings

The Securities and Exchange Commission (SEC) has rejected the New York Stock Exchange’s proposal to enable companies to go public through a direct listing to raise capital at the same time.

The NYSE had filed for the rule change last week. The proposal disappeared from its website on Friday, and a spokesperson at the Big Board confirmed it has been rejected by the SEC.

“We remain committed to evolving the direct listing product,” the NYSE said. “This sort of action is not unusual in the filing process and we will continue to work with the SEC on this initiative.”

Spotify and later and Slack went public through a direct listing in 2019. Banks are working with numerous other companies, including Airbnb, who want to take that route as an alternative to an initial public offering.

With a direct listing, firms do not raise new money and rather allow existing investors, who normally have to wait for a lockup period to expire, to sell into the public market. It is proving to be a growing popular option for companies that don’t need cash, but the NYSE is aiming to make the direct listing more accessible for a wider swath of businesses.

The topic of direct listings started getting more attention following the Slack offering, as venture capitalists like Benchmark’s Bill Gurley became more vocal in their criticisms of IPOs, which tend to end in large first-day pops that benefit new investors at the expense of insiders and employees. Gurley held an event in San Francisco earlier in October to educate top investors and pre-IPO tech companies on the benefits of direct listings, and the big investment banks followed with events of their own.

Source: CNBC