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NYSE submits revised direct listing plans days after SEC rejection

Wall Street's Big Board is not backing down from its pursuit to overhaul the mechanics behind direct listings.

The New York Stock Exchange has resubmitted a series of rule changes for regulatory review that, if approved, would allow a broader universe of companies to go public through what is known as a direct listing while raising capital in the process. The move comes five days after U.S. regulators at the SEC axed the exchange's original plans, which were submitted in late November.

Under its revised proposals, NYSE is planning a number of changes to the existing direct listing model that could make it a greater threat to the dominance of initial public offerings.

Direct listings are already cited by many capital market experts as a cheaper and faster route to the public markets than the IPO. But the model's adoption has remained limited, in part because companies cannot raise capital during a direct listing.

NYSE is proposing to change that as part of its pending rule changes. The exchange wants to allow a company to pursue a capital-raising direct listing so long as it sells at least $100 million worth of its shares in its first-ever opening auction or has a combined market value of $250 million between the shares sold in the opening auction and those that are publicly held immediately prior to the listing.

That marks one of the key distinctions from the exchange's first filing. NYSE previously had floated requiring companies to raise at least $250 million when conducting their capital raise during the direct listing.

The exchange, which is owned by Intercontinental Exchange Inc., has additionally proposed extending its distribution rules in certain conditions.

Today, NYSE requires that its listed companies have no less than 400 investors with at least 100 shares each at the time of their listing. However, NYSE is seeking to allow a company to execute a capital-raising direct listing without meeting that requirement, if it sells at least $250 million of stock in its first opening auction. That, NYSE says, would make it "highly likely" that the company would meet the exchange's distribution requirements quickly after its listing. The company would have 90 trading days to comply with the rule after its listing.

A company that is pursuing a capital raise during its direct listing, but which sold less than $250 million worth of its stock in the opening auction, may be able to benefit from the 90-day window as well. Those companies would need the market values of their publicly held shares right before their listing and the shares they sold during the opening auction to total at least $350 million.

Direct listings have recently captured headlines amid growing interest in the model across the issuer and venture capital communities. Industry participants have said there could be as many as five direct listings in 2020, though University of Florida finance professor Jay Ritter has said the NYSE proposals could raise that number.

"Allowing capital raising in direct listings is going to significantly expand the number of companies that do direct listings," Ritter said in a November interview.