U.S. approves NYSE listing plan to cut out Wall Street middlemen

Corporations can raise capital on the New York Stock Exchange through direct listings without losing profits if their stock jumps, or by paying heavy fees to Wall Street banks that typically subscribe to such capital increases the U.S. securities regulator said on Tuesday.

The approval of the NYSE's "direct" listing plan by the Securities and Exchange Commission threatens to overhaul the US IPO market so privately held companies can sell shares directly to investors.

Investment banks have been going public for decades, marketing them to institutes and supporting the stock through their trading desks.

After months of haggling in the industry, the change will help reduce what critics are calling excessive subscription fees, a major hurdle for companies looking to go public. This is especially important for tech companies and start-ups, both of which would benefit greatly from the SEC's new decision.

"This is a cornerstone of our financial markets, one that improves the playing field for everyday investors and gives companies a different way to go public when they are looking for this very kind of innovation," said the NYSE President. , Stacey Cunningham, in a statement. .

However, investor groups have warned that doing so could reduce their protection as banks subject companies to due diligence.

"The commission believes the proposal will facilitate the proper distribution and trading of stocks and competition," the SEC wrote in a statement on Tuesday.

The plan should "prevent fraudulent and manipulative acts and practices, and protect investors and the public interest," he added.

Prior to the SEC's approval on Tuesday, the commission approved direct listings for companies that did not raise capital. In 2018, Spotify Technology SA, a music streaming company, was the first major company to go public on this channel. Direct listings were also limited to companies looking to give early investors or management the opportunity to make money selling stocks.

Peter Thiel-backed Palantir Technologies and Asana are some of the high-profile, cash-rich private start-ups to choose the direct listing route this year.

Under the NYSE plan, issuers can sell shares directly on the exchange in an auction, which would increase opportunities for more investors to purchase shares at the initial offering price, rather than having to wait to buy in the aftermarket.

That could make direct listings more common since most companies go public to raise capital.

What’s more, is that under the NYSE plan, new shares will get priority over secondary ones. This will give companies a better chance of reaching their fundraising goals.

“It was not a quick process to get this change through the SEC, which put a lot of effort into balancing the rights of investors versus the desire of more companies to have direct listing as an option,” said Michael Hermsen, a Chicago-based partner at Mayer Brown.