As discussed in the August 31, 2020 edition of the Corporate & Financial Weekly Digest, on August 26, the Securities and Exchange Commission (SEC) approved rules proposed by the New York Stock Exchange (NYSE) to allow companies engaging in a direct listing to raise capital directly through the sale of primary shares upon the direct listing, in addition to, or instead of, facilitating sales of shares solely by existing shareholders.

In a letter to the NYSE, dated as of August 31, the SEC notified the NYSE that it has received a notice of intention to petition the rules. Accordingly, the SEC has stayed implementation of the new NYSE direct listing rules until such time as the SEC orders otherwise.

The SEC’s action follows a letter issued by the Council of Institutional Investors (CII) pursuant to which CII stated its intention to petition for a review of the new rules regarding direct listings. CII objects to the direct listing rules out of a concern that companies may attempt to limit their liability to investors for losses associated with false statements of fact or material omissions of fact within the SEC registration statement relating to the direct listing.   Particularly, they cite a concern with the ability of aggrieved investors to trace their shares to those offered pursuant to a particular registration statement, given the fact that some direct listings may not include (and prior direct listings have not included) any lockup agreements and both shares sold pursuant to a registration statement and those sold outside of a registration statement may enter the market quickly following the direct listing.

The full text of the SEC’s letter staying the implementation of the new direct listing rules is available here.