SEC's Direct Listings Expansion Could Invite New Risks

Fenwick corporate partner Ran Ben-Tzur talked to Law360 about the potential rise in direct listings now that the U.S. Securities and Exchange Commission has cleared the way for companies to sell new shares concurrent with a direct listing on the New York Stock Exchange, with a similar proposal pending for the Nasdaq Global Select Market.

"It's definitely a more appealing structure," Ran said.

While Ran noted that direct listings “chip away at the traditional IPO" since the pricing of shares sold to the public is more likely to reflect market forces, he also explained the potential downsides to direct listings, including less investor education. This is because underwriters in a traditional IPO play a pivotal role in marketing and describing a company's offering to the investing public, Ran told Law360. Because underwriters are not used in direct listings, the onus to educate investors thus falls heavily on the company’s management team, he noted.

For the latest information on direct listings, read the article Ran co-authored, The Latest and Greatest on Direct Listings: Direct Listings + Capital Raise, Lock-Up Agreements, COVID-19 and more.

The full article is available on Law360 (subscription required).