No Walls in 2021? SEC Reopens the Door for Companies to Raise Capital through Direct Listings on the NYSE

On December 22, 2020, the Securities and Exchange Commission (the “SEC”) reapproved the NYSE’s rules permitting companies, at the time of their initial listing on the NYSE, to raise capital through direct listings (a “Primary Direct Listing”). The rules were approved after the SEC determined that the NYSE “has met its burden to show that the proposed rule change is consistent with the Exchange Act.”

Readers will remember that the NYSE’s rules permitting Primary Direct Listing were initially approved by the SEC in August 2020, but then, in response to a petition by the Council for Institutional Investors¹ for review of the SEC’s approval of the rules, the SEC issued a stay halting the implementation of the NYSE’s rules. The SEC’s latest approval may be appealed.

The SEC in its order noted that “the Exchange Act requires that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest; and are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers, or to regulate by virtue of any authority conferred by the Exchange Act matters not related to the purposes of the Exchange Act or the administration of an exchange.”

The approved rules are the same as what the SEC approved in August 2020, which was summarized in our previous Momentum alert and are re-summarized here.

¹The Council is a nonprofit, nonpartisan association of US public, corporate, and union employee benefit funds, other employee benefit plans, state and local entities charged with investing public assets, and foundations and endowments.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. David J. Johnson Jr., an O’Melveny partner licensed to practice law in California, the District of Columbia, New York, and Hong Kong, Warren T. Lazarow, an O’Melveny partner licensed to practice law in California and New York, and Jeeho Lee, an O’Melveny partner licensed to practice law in California and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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