The New York Stock Exchange has submitted a proposal with the U.S. Securities and Exchange Commission that would allow companies going public through a direct listing to raise capital.
The move would open up another pathway for companies to raise money in the public markets, allowing companies, not just existing shareholders, to sell shares through a direct listing.
This is likely to appease venture capitalists who are considering eschewing the traditional IPO for the direct-listing method as a way to sidestep hefty underwriting fees and lockup-period restrictions that keep investors from selling shares for a set period.
Direct listings differ from traditional IPOs in that no new shares are issued and therefore no new capital is raised. Instead, existing shareholders have an opportunity to sell their shares on the open market through a more casual marketing process than one typically led by investment bankers. In a traditional IPO, companies have to go through underwriters to sell shares and raise capital.
In the new hybrid model, a company can issue new shares, called primary shares, which can be immediately sold to public-market participants on the first day of trading. This can be in addition to, or in lieu of, existing shareholders who sell their shares, called secondary shares.
An expanded version of this report appears on WSJ.com.
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