NYSE secures SEC approval of direct listing rule changes
12/23/2020

Davis Polk successfully represented the New York Stock Exchange LLC (“NYSE”) before the Securities and Exchange Commission (the “SEC” or “Commission”) in connection with NYSE’s proposed expansion of its direct listing rules. The rule changes will, for the first time, permit issuers to raise capital by directly selling new shares upon initial listing with NYSE without a firm commitment underwritten offering—an innovation that has the potential to expand access to U.S. equity markets, increase efficiency and enhance investor choice.

 The rule changes were initially approved by the SEC’s Division of Trading and Markets pursuant to delegated authority on August 26, 2020, but that approval was suspended when the Council of Institutional Investors (“CII”), which had opposed approval of the rule changes, filed a petition for review by the full Commission. After the SEC granted the petition, Davis Polk filed a written statement on behalf of NYSE in support of the rule changes. In the statement, Davis Polk argued that NYSE’s proposed rule changes satisfied all statutory and regulatory requirements for approval, and, in particular, addressed CII’s concern that shareholders in direct listings might not be able to bring claims under Section 11 of the Securities Act of 1933.

On December 22, 2020, following a de novo review, the SEC issued an order approving NYSE’s proposed direct listing rule changes, concluding that they were consistent with the requirements of the federal securities laws and regulations. The SEC determined that purchasers in direct listings would have the same ability to pursue Section 11 claims as any other investors, accepting Davis Polk’s argument on behalf of NYSE that potential difficulties faced by Section 11 plaintiffs were neither exclusive to nor inherent in the direct listings contemplated by the rule changes. The SEC concluded that any such potential difficulties were similar to those faced by investors in any other type of offering, and that the proposed rule changes were accordingly consistent with the protection of investors. The Commission further found that direct listings would provide a number of important benefits to existing and potential investors relative to traditional firm commitment underwritten offerings, including expanding the class of investors able to purchase shares at the offering price, providing a new price discovery method that could allow for efficiencies in share pricing and allocation and promoting competition.

The Davis Polk litigation team includes partner Paul S. Mishkin, counsel Daniel J. Schwartz and associates Lindsay Schare, Miles Christian Babin, Melissa Danzo and Diane S. Hu. Litigation partners Edmund Polubinski III and Michael S. Flynn also provided advice. The Davis Polk corporate team includes partners Joseph A. Hall, Marcel Fausten, Annette L. Nazareth and Zachary J. Zweihorn. Members of the Davis Polk team are based in the New York and Washington DC offices.