SEC Approves NYSE’s Plan for Direct Listing

The Securities and Exchange Commission will allow companies to raise capital through direct listings, opening the door to a new alternative to the traditional initial public offering. In a direct listing, a company floats its shares on a stock exchange, but without hiring banks to underwrite the transaction like in an IPO. Until now, companies have only been allowed to use direct listings to sell existing shares, which means their founders and early investors could cash out of their stakes, but the company couldn’t raise new capital. Now, with the NYSE’s new type of direct listing, a company will be able to issue new shares and sell them to public investors in a single, large transaction on the first day of trading, much like the first trade in an IPO. That could make direct listings more common since most companies go public to raise capital.