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SEC gives green light to NYSE's plan for capital raises in direct listings

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SEC gives green light to NYSE's plan for capital raises in direct listings

Wall Street's top regulator has given the New York Stock Exchange the final go-ahead on a plan to allow capital raises in direct listings, a decision expected to broaden the IPO alternative's appeal.

The U.S. Securities and Exchange Commission reaffirmed its staff's prior approval of the NYSE plan Dec. 22, capping off a more than yearlong pursuit by the Intercontinental Exchange Inc.-owned Big Board to convince the regulator to allow companies to raise capital and directly list their shares at the same time.

Under the proposal, companies will be able to raise primary capital in their stock's first opening auction. The current direct listing model only allows for shareholders to sell at that time rather than the company itself, a feature that is believed to be a key reason why only a few firms, including Spotify Technology SA, Slack Technologies Inc., Watford Holdings Ltd., Palantir Technologies Inc. and Asana Inc., have pursued direct listings.

The direct listing is one of several alternatives to the IPO that have emerged in recent years. Championed by venture capitalists, the model allows a company to seemingly overnight list its shares on an exchange and thereby avoid many of the perceived headaches that are included in the usual path to the public markets, such as roadshows and underwriters.

"This is a game changer for our capital markets, leveling the playing field for everyday investors and providing companies with another path to go public at a moment when they are seeking just this type of innovation," NYSE President Stacey Cunningham said in a statement following the SEC ruling.

The SEC commissioners' sign-off comes months after the Council of Institutional Investors, a group whose pension fund, asset manager and endowment members collectively represent more than $4 trillion of assets under management, challenged an approval order of the NYSE plan passed down from the SEC staff over investor protection concerns.

"We are disappointed that the SEC order failed to give adequate consideration to investor concerns about liability and corporate governance that are exacerbated by the expansion of direct listings," CII Executive Director Amy Borrus said in a statement.

In its final order, the SEC dismissed concerns about the lack of underwriters in a direct listing, while adding that the proposal could lead to more investors being able to buy stock directly from the company and better after-market pricing mechanisms than the traditional initial public offering.