Markets

NYSE gets approval for cheaper IPO alternative for companies amid SPAC boom

Key Points
  • The SEC said it approved a new type of direct listing where companies can simultaneously go public and raise cash from public market investors.
  • Previously, companies doing direct listings only allowed existing private shareholders to sell stock to public investors.
  • The move came as a record number of companies have turned to SPACs, or special purpose acquisition companies, as a backdoor way to be listed on exchanges this year.
Twenty/20

The New York Stock Exchange has won the approval from regulators to allow companies to issue new shares through direct listings, creating a cheaper alternative to the traditional initial public offering.

The Securities and Exchange Commission said in an order Wednesday evening that it approved a new type of direct listing where companies can simultaneously go public and raise cash from public market investors. Previously, companies doing direct listings only allowed existing private shareholders to sell stock to public investors.

The NYSE's move came as a record number of companies have turned to SPACs, or special purpose acquisition companies, as a backdoor way to be listed on exchanges this year. A SPAC is a blank-check company formed to raise funds to finance a merger or acquisition within a certain time frame, typically two years. The target firm will be taken public through the acquisition.

There have been 67 SPAC offerings globally raising a record $23.9 billion this year, making up nearly a fifth of the total funds raised through initial public offerings which tallied $115.9 billion, according to Refinitiv. Of the 67 global offerings, 61 are U.S.-listed.

Companies have shied away from the traditional IPO market roiled by the coronavirus pandemic and wild volatility. Nikola and DraftKings both went the SPAC route to be listed on exchanges, and Bill Ackman last month launched the biggest SPAC in history, worth $4 billion. 

Earlier this week, data analytics company Palantir Technologies announced its plan to debut on public markets with a direct listing. The company aims to trade on the NYSE under the ticker PLTR, reportedly with a valuation of at least $26 billion. Slack and Spotify also took this route to go public in recent years.

NYSE's new structure of direct listings could curb some of the enthusiasm in the booming SPAC market as it provides similar advantages. Companies can skip the roadshow process and avoid some of the scrutiny that goes with a traditional IPO.

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