SEC Reviews and Approves Changes to NYSE Rules to Allow Capital Raising in Direct Quotes – Finance and Banking



[ad_1]

United States: SEC Reviews and Approves NYSE Rule Changes to Allow Raising of Capital in Direct Listings

To print this article, simply register or connect to Mondaq.com.

In short

The situation: In August 2020, the Division of Trading and Markets (“Division”) of the United States Securities and Exchange Commission (“SEC”) approved proposed rule changes by the New York Stock Exchange (“NYSE”) to allow a first capital raising in the context of direct registrations. However, the approval was put on hold in light of a third party request for a review of the approval order. On December 22, 2020, following a
de novo Considering the rule changes proposed by the NYSE, the SEC has approved the proposal, finding it to comply with the provisions of the Securities Exchange Act of 1934 (the “Exchange Act”).

The result: The SEC approval of the NYSE rule changes allows companies to sell newly issued primary stocks on a direct listing – an SEC-registered offer and an initial stock exchange listing without a go-through entity serving as a usher.

Looking forward: While there continues to be a range of divergent views on the pros and cons of raising primary capital through direct listings, the approval of the NYSE rule changes removes an important limitation on which are faced by companies considering direct listing on the NYSE and offers greater flexibility to companies exploring alternative paths to US public company status. In a related development, on December 17, 2020, the SEC initiated proceedings to determine whether to approve a similar rule change proposal proposed by Nasdaq Stock Market LLC (“Nasdaq”) in September 2020 with respect to its Global Select Market.

On August 26, 2020, the Division approved a proposal from NYSE to allow private companies to raise capital through a direct listing on NYSE. Subsequently, a third party asked the SEC to review the approval of the division and, in accordance with SEC rules, the approval of the division was automatically suspended.

On December 22, 2020, following a de novo In reviewing the NYSE proposal, the SEC determined that the NYSE was fulfilling its obligation to show that the proposed rule changes complied with the provisions of the Exchange Act and approved the rule changes. the NYSE.

For more information on the details of the changes to the NYSE direct listing rules to allow for the raising of primary capital, see our previous post on the August 26, 2020 proposal.

Remarkable

The approved NYSE rule changes will allow a private company seeking to list its securities to raise new capital without going through a traditional initial public offering (“IPO”) process. Specifically, the approved rule changes will allow a private company to meet NYSE’s market value requirements by selling at least $ 100 million in stock in the opening auction. When less than $ 100 million of principal shares are offered, the total market value of the publicly held shares of the company that wishes to register directly must be at least $ 250 million.

NYSE rules will continue to require that generally applicable initial listing requirements be met upon completion of direct listing, including requirements to have 400 round lot holders, 1.1 million. outstanding public shares and a price per share of at least $ 4.00.

Some specific elements of the procedures that will apply to direct listing auctions of the primary offer are noteworthy insofar as they could potentially have an impact on pricing and flexibility of execution. For any NYSE primary direct listing:

  • The issuer must identify the primary stocks that it seeks to sell by placing an irrevocable and non-modifiable issuer direct offer order (“IDO Order”) with a “limit” price equal to the bottom of a price range. specified on the issuer’s actual registration statement.
  • The auction price, which would be determined by a designated market maker, must be within this price range, and both the IDO order and all lower sell orders must be satisfied at that price. that is, an auction would not be conducted if the auction price was outside the range (more Where lower) or if there was not enough buy interest to satisfy the IDO order and all lower sell orders in their entirety.
  • In a direct quote where the auction price is equal to the lower end of the range, the issuer’s IDO order has execution priority; in a direct quote where the auction price is within the range, the issuer’s IDO order (as a limit order with the lower end of the range as the “limit”) will be a lower price bid and will receive execution priority.

In approving the NYSE rule changes, the SEC rejected arguments raised by the third-party petitioner and others suggesting that the rule changes would increase investor risk by bypassing traditional IPO due diligence processes and could infringe the legal rights of shareholders under Article 11 of the Securities. Act of 1933 (the “Securities Act”). In approving the NYSE’s position, the SEC agreed that the Securities Act does not require an underwriter’s involvement in registered offers, noted that the Securities Act’s broad definition of “underwriter” would create a specter of underwriter. potential liability that would create strong due diligence incentives, and reiterated the important role of other parties subject to the liability of securities laws (e.g., issuers, directors and accountants) in ensuring that the disclosures are materially accurate and complete. The SEC also noted that the changes to the NYSE rules provide benefits to investors, including a potential improvement in the efficiency of pricing and allocation mechanisms. In light of these and other considerations, the SEC found that, on the whole, the rule changes were consistent with the objectives and provisions of the Exchange Act.

The changes to the NYSE rules provide desirable flexibility for companies exploring potential IPOs in the United States. However, companies considering a direct listing or traditional IPO process should carefully consider the trade-offs, costs, and benefits of each approach.

The following table highlights key aspects of the newly approved NYSE rule changes, as well as the proposed rule changes for the Nasdaq Global Select Marketplace that are currently subject to SEC proceedings, with respect to listing requirements. for direct quotes.

1052964a.jpg

Two key points to remember:

  1. The SEC approval of changes to the NYSE rules allowing direct primary offering listings provides a greater option for issuers and is sure to increase interest in this new path to an IPO and raising capital.
  2. Firms considering an IPO should, in consultation with legal and investment banking advisors, carefully assess which approach (a direct primary offering listing or a traditional IPO) best serves the objectives and the specific needs of the business.

Originally published January 2021

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

POPULAR ARTICLES ON: Finance and Banking in the United States

Let’s talk about carbon offsetting

Winston & Strawn LLP

Be sure to follow this timely discussion to find out why carbon offsets purchases have already reached record highs in 2021.

[ad_2]

Previous Nikola collapses after filing for capital increase
Next Air New Zealand's capital increase delayed