NYSE direct quotes frozen as investor group raises concerns

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The New York Stock Exchange’s plan to allow companies to raise capital through direct listings is on hold after an influential group of institutional investors took an unusual regulatory step in a last-ditch effort to block it.

The Council of Institutional Investors, which was behind the maneuver, raised concerns that the NYSE plan would allow companies to bypass the protections built into the initial public offering process, to the detriment of investors. investors.

The board filed a notice with the Securities and Exchange Commission on Monday that it would seek a review of the plan by SEC commissioners. SEC staff approved the plan last week, opening the door to a new, cheaper alternative to the IPO for companies looking to go public.

But the council maneuver at least temporarily closed the door. The SEC informed the NYSE in a letter posted on the agency’s website that its approval of the NYSE plan has been suspended until further notice.

The council is due to file its petition in the coming days. SEC rules don’t specify how long SEC commissioners must review the petition, but similar reviews in the past have dragged on for months. Potentially, the commissioners could reverse last week’s decision and prevent companies from using the new type of direct listing to go public on the NYSE.

A spokesperson for the NYSE said on Tuesday that the exchange would ask the SEC to act quickly and allow the proposed expansion of direct listings.

“The ability to raise capital with a direct NYSE listing represents an innovative new route to public markets, and we intend to ask the SEC to lift its suspension to make this important resource immediately available to issuers and investors. investors, ”the NYSE spokesperson said.

In a direct listing, a company lists its shares on the stock exchange, but without using banks to guarantee the transaction as in an IPO. Music streaming company Spotify Technology HER

used the process to go public in 2018, followed by Slack Technologies Inc.

Last year.

In these deals, existing Spotify and Slack shareholders sold their shares, but the companies did not raise new capital. The NYSE plan would create a new kind of direct listing process in which companies could issue new shares and sell them to public investors in one large trade on the first day of trading, much like the first trade in an IPO. in stock exchange.

This would effectively create a cheaper alternative to the IPO in which companies could go public without paying subscription fees to investment banks.

Opponents of the plan had raised concerns that companies publicly traded through direct listing would use the process to dodge shareholder lawsuits, relying on the quirks of US securities laws. securities that were written with more traditional stock offerings in mind. Other groups have expressed concern that direct quotes could cause volatility on the first day of trading.

“Many commentators have raised various concerns about the use of direct quotes to make a primary offer,” Jeffrey Mahoney, general counsel at the Council of Institutional Investors said Tuesday. Legal experts see the NYSE plan as a game-changer, he said.

The board represents pension funds, foundations, endowments and other large investors with combined assets under management of approximately $ 4 trillion, and it often weighs in on corporate governance issues. He is perhaps known as a critic of double class listings, in which certain shareholders of a company have larger voting rights than ordinary investors.

Write to Alexandre Osipovich at [email protected]

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Appeared in the September 2, 2020 print edition under the title “NYSE Direct Listing Plan is on Hold.”

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