The New York Stock Exchange (NYSE), by far the world's largest stock exchange by market capitalization of its listed companies is considering a major change to its initial public offering (IPO) rules that stand to benefit Chinese and foreign firms seeking to go public without incurring massive expenses from underwriting.
The proposed rule change has to do with "direct listing," also called a "direct public offering" (DPO). Under current NYSE rules, companies can't raise capital when conducting a direct listing.
On Tuesday, the NYSE filed a proposal to change the rules so companies can simultaneously go public through a direct listing and raise cash from public market investors. It filed these rules change with the U.S. with the Securities and Exchange Commission (SEC).
The new proposal plans to amend Chapter One of the Listed Company Manual that outlines the NYSE's initial listing requirements for companies completing an initial public offerings (IPOs) or direct listings. If the amendment is approved, companies going public on the NYSE will be permitted to raise capital through a direct listing.
"The proposed change would allow a company that has not previously had its common equity securities registered under the Act, to list its common equity securities on the Exchange at the time of effectiveness of a registration statement pursuant to which the company will sell shares in the opening auction on the first day of trading on the Exchange," wrote the NYSE wrote in its proposal to the SEC.
Based on existing NYSE rules, companies choosing direct listing go public after publishing the same type of prospectus required for an IPO. They also have to issue new shares. The proposed rule change will allow existing private shareholders to sell stock to public investors.
The NYSE said the proposed amendments won't impose any burden on competition, but will instead increase competition by providing new pathways from companies to access the public markets.
The proposal now awaits public comments. The SEC can either approve or disapprove the proposed rule change or institute proceedings to determine if the proposed rule change should be disapproved.
Analysts said the NYSE's move is the latest sign direct listings are increasing in popularity and. They expect to see more direct listings in the next decade.
