Direct Listings: An Innovative Way to Take a Company Public on the NYSE

2019-06-23

  There’s more than one way to go public.

  When most people hear about companies listing on the New York Stock Exchange, they naturally think of the Initial Public Offering. In an IPO, a company raises money -- typically hundreds of millions to billions of dollars -- by selling stock to public investors. The biggest IPOs are the stuff of Wall Street legend.

What about companies that want to list on the NYSE for reasons other than raising money? What if some companies want to be publicly traded but don’t want to raise capital at all?

Slack Chooses a Direct Listing

This week, Slack will demonstrate exactly that. The company, a tech unicorn well-known for its leading collaboration hub, will list on the NYSE through what’s known an NYSE Direct Floor Listing, only the second large company to do so.

A direct listing allows companies to capture all the benefits of being publicly traded without needing to raise any capital. Those who follow how IPOs traditionally unfold will notice some elements they commonly see during the run-up to and day of an IPO won’t happen with a direct listing. There is no roadshow. No underwriter. No offering price. On listing day, the company simply begins trading.

Simple in form but complex to execute, a large-scale direct listing at the NYSE represents an important innovation in our capital markets. It is also a fascinating event to witness.

The first large company to complete a direct listing was Spotify in April 2018. That listing was a success, with the stock trading smoothly during the first day and the days that followed. This is a key goal in a direct listing, as there is no offering price to guide pricing for the first trade.

How the Process Works

While a great deal of work is done in advance of a direct listing, the action really kicks up the evening before trading begins. At that time, the NYSE will establish a reference price, based on how the company has traded in the private market or in consultation with the company’s financial advisor. This reference price will help inform where the stock starts trading.

The next morning, the work begins in earnest. On the floor of the NYSE, spectators will see the ceremonies and fanfare that typically accompany an IPO. A huge banner on the NYSE’s façade. Guests filling the trading floor. A celebratory breakfast held for employees and others.

On the floor, however, the actual work of price discovery differs from an IPO. The company’s designated market maker -- the firm that will oversee its trading on listing day and beyond -- begins the work of determining the stock’s opening price. The market maker does this by examining the buy and sell orders that are coming in, informed by the reference price, and consults with the company’s financial advisor.

Once the order book is built -- the offers to buy and sell are roughly in balance at a certain price -- and the market maker is ready, the stock will begin trading, marked by the ringing of the NYSE’s First Trade bell. The direct listing has been accomplished.

How long will the process take? It can vary, based on the volume of orders, but may well be longer than a typical IPO. Spotify opened at 12:43 pm on the day of its direct listing, more than 3 hours after the Opening Bell. Its first trade comprised $940 million in stock, opening at $165.90 a share.

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All the Benefits of an NYSE Listing

Once complete, a company that has gone public through a direct listing enjoys all the advantages of any NYSE-listed company.

The newly-listed company receives the added media and investor attention that public companies typically get. It has the ability to raise capital in the future through follow-on stock offerings. It can use its NYSE-listed shares as a currency for mergers and acquisitions. It can provide employees and early investors with liquidity. And it enters the community of 2,300 other public companies listed on the NYSE, accessing one of the most powerful networks of innovation and leadership in the world.

Will direct listings replace IPOs? Not anytime soon. However, for the right companies -- those with strong, existing brand recognition and no need to raise capital -- a direct listing can be an excellent fit.

We are proud to be the exchange that pioneered the large-scale direct listing. Importantly, our floor-based market, with humans applying their judgment and experience alongside world-leading technology, is the key to executing major direct listings. It can only be found on the NYSE.

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