The SEC approved the New York Stock Exchange’s proposal to modify the pricing limitations applicable to direct listings with a primary component. This comes after the SEC approved a similar proposal by The Nasdaq in December, Ropes & Gray reports.
Both exchanges previously permitted a primary direct listing to proceed only if the price determined at the opening auction fell within the price range included in the effective registration statement covering the shares being offered (the “Stated Price Range”), and the modified rules of each exchange will now permit the opening auction price to be set up to 20% below and up to 80% above the Stated Price Range (the “Modified Price Range”), subject to certain conditions.
The NYSE and Nasdaq will calculate the Modified Price Range based on the highest price in the Stated Price Range (for instance, if the Stated Price Range is $28 – $30, the Modified Price Range will be $22 – $54).
Impact of the Modified Rules on the Prevalence of Primary Direct Listings
By creating more flexibility around the issuer’s stock price at the time of listing, the rule changes by each exchange appear to be geared toward enhancing the prospects for primary direct listings. While the NYSE and Nasdaq adopted rules allowing for primary direct listings in late 2020 and early 2021, respectively, no such transaction has been effected on either exchange to date. The NYSE stated that the modifications are intended to address concerns that “[t]he Price Range Limitation—which is imposed on a Primary Direct Floor Listing but not on an IPO—increases the probability of a failed offering because it contemplates there also being too much investor interest. In other words, if investor interest is greater than the company and its advisors anticipated, an offering would need to be delayed or cancelled.” However, it remains to be seen whether these rule changes will lead to an increase of companies choosing to go public via primary direct listings as an alternative to traditional underwritten IPOs. Read more.
