The US Securities and Exchange Commission (SEC) has approved a proposed plan by the New York Stock Exchange (NYSE) to let companies raise capital through direct listings and save on bank underwriting fees, a notice posted to its website indicates.

The approval means companies can now sell newly issued shares on the NYSE without going through the traditional bank underwriting companies, whereas before now, companies were allowed to list directly but only limited to selling existing shares and not new shares. 

The approval from the SEC came after months of wrangling and significant opposition to the NYSE’s proposal from trade groups such as the Council of Institutional Investors, which argued that the new kind of direct-listing process would evade the investor protections of traditional IPOs.

Now approved, companies can now cut out lucrative underwriting fees usually awarded to banks in the traditional IPO process but would likely still be paying significant sums as bank advising fees. The approval seems like an early Christmas gift for venture-backed companies, particularly those in the tech industry, which have accounted for literally all direct listings in recent years.

Direct listings themselves haven’t been around for long, with the music streaming company Spotify having been the first to test the waters in its 2018 IPO. After it, Slack, Asana, and Palantir followed with their own direct listings.

Now, with approval from the SEC for selling new shares through direct listings, it’s expected that more companies will seek to take that path and strengthen the market for such listings.

Photo credit: Mike_fleming, licensed under CC BY 2.0

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