The issuer must file a Form 10 with the SEC to register under the Securities Exchange Act of 1934, but there is no inherent statutory obligation to register these shares under the Securities Act of 1933, because the issuer is not making any sale. In a “direct listing,” in contrast, no new shares are issued by the company rather, shares that it has previously issued in private placements (or other exempt transactions, such as under Rule 701) are listed on the NYSE or Nasdaq. Pricing is a three-way process, with the issuer, the managing underwriters, and the largest mutual funds all having a voice. In a traditional IPO on the NYSE, there is a “firm commitment” underwriting, with the underwriters selling the registered shares to public investors, after a “road show” tour and much marketing. Similarly, that a direct listing is permitted does not imply that the market will embrace it. This development raises issues on several levels: (1) How will this new procedure work? (2) Will this model attract other private issuers, who have found abundant financing in the venture capital market and have shown little interest in undertaking an IPO? (3) What legal risks or issues lurk in this new procedure? and, most importantly, (4) Why would “unicorns” that are indifferent to an IPO seek a direct listing? By analogy, even if one successfully obtains a patent on the first airplane, that does not prove that the new machine will fly.
Barring some last minute difficulty with the SEC, the NYSE new rules are scheduled to be approved by mid-February. If the news stories are accurate, the SEC has signaled its willingness to approve the NYSE rule changes (which largely mirror the rules for direct listings on Nasdaq ). Eager to accommodate Spotify, the NYSE has filed amendments to its listing rules with the SEC (and twice amended this filing, most recently in December).
Already, it has made a confidential filing of its registration statement with the SEC. Press reports indicate that Spotify, the music streaming company, is planning an initial public offering in March or April of this year, and that it plans to use a novel “direct listing” approach that has not previously been used at the New York Stock Exchange.
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