Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 85807 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3On December 13, 2019, the Exchange filed 

Amendment No. 1 to the proposed rule change, 

which amended and replaced the proposed rule 

change in its entirety. The proposed rule change, as 

modified by Amendment No. 1, was published for 

comment in the Federal Register on December 30, 

2019. See Exchange Act Release No. 87821 (Dec. 20, 

2019), 84 FR 72065. On February 13, 2020, pursuant 

to Section 19(b)(2) of the Exchange Act, the 

Commission designated a longer period within 

which to either approve the proposed rule change, 

disapprove the proposed rule change, or institute 

proceedings to determine whether to disapprove the 

proposed rule change. See Exchange Act Release 

No. 88190, 85 FR 9891 (Feb. 20, 2020). On March 

26, 2020, the Commission instituted proceedings to 

determine whether to approve or disapprove the 

proposed rule change, as modified by Amendment 

No. 1. See Exchange Act Release No. 88485, 85 FR 

18292 (Apr. 1, 2020) (‘‘OIP’’). On June 22, 2020, the 

Exchange filed Amendment No. 2 to the proposed 

rule change, which superseded the proposed rule 

change as modified by Amendment No. 1 

(‘‘Amendment No. 2’’). On June 24, 2020, the 

Commission extended the time period for 

approving or disapproving the proposal to August 

26, 2020. See Exchange Act Release No. 89147, 85 

FR 39226 (June 30, 2020). The proposed rule 

change, as modified by Amendment No. 2, was 

published for comment in the Federal Register on 

June 30, 2020. See Exchange Act Release No. 89148 

(June 24, 2020), 85 FR 39246 (‘‘Notice’’). 

4 17 CFR 200.30–3(a)(12). 

5See Exchange Act Release No. 89684, 85 FR 

54454 (Sept. 1, 2020). 

6 17 CFR 201.431(e). See Letter to John Carey, 

Senior Director, NYSE Group Inc. (Aug. 31, 2020) 

(providing notice of receipt of notice of intention 

for review of delegated action and stay of order), 

available at https://www.sec.gov/rules/sro/nyse/ 

2020/34-89684-carey-letter.pdf. On September 4, 

2020, NYSE filed a motion for the Commission to 

lift the automatic stay of the Approval Order and 

a brief in support of its motion to lift the stay. On 

September 8, 2020, CII filed a brief in opposition 

to NYSE’s motion to lift the automatic stay. On 

September 11, 2020, NYSE filed a reply brief in 

support of its motion to lift the stay. 

7See Exchange Act Release No. 90001, 85 FR 

61793 (Sept. 30, 2020). In the scheduling order, the 

Commission also denied NYSE’s motion to lift the 

automatic stay of the Approval Order and ordered 

that the proposed rule change, as modified by 

Amendment No. 2, remain stayed. 

8See The New York Stock Exchange LLC’s 

Statement in Support of Order Approving Proposed 

Rule Change (Oct. 16, 2020) (‘‘NYSE Statement’’). 

9 15 U.S.C. 78s(b)(2)(C). 

10 17 CFR 201.700(b)(3). 

11 Id. 

12 Id. 

this Form could be different if the 

Funds did not rely on the exemptive 

order.’’ 

2. Each Covered Fund will include 

explanatory notes in any Form N– 

LIQUID filing describing the 

classification methodology used to 

determine ‘‘highly liquid investments’’ 

or ‘‘illiquid investments,’’ as applicable, 

and any related assumptions. 

3. The annual report provided to the 

board of trustees of each Covered Fund 

that implements the Amended Liquidity 

Program pursuant to rule 22e–4(b)(2)(iii) 

will include a certification with respect 

to compliance with the terms of the 

Order. 

4. The Covered Funds that implement 

the Amended Liquidity Program will 

maintain records for a period of five 

years (the first two years in an easily 

accessible place) showing each 

instrument’s classification under the 

Liquidity Risk Framework’s five 

categories and each instrument’s 

classification after it has been converted 

to four categories. 

By the Commission. 

Eduardo A. Aleman, 

Deputy Secretary. 

[FR Doc. 2020–28764 Filed 12–28–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90768; File No. SR–NYSE– 

2019–67] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Order 

Setting Aside Action by Delegated 

Authority and Approving a Proposed 

Rule Change, as Modified by 

Amendment No. 2, To Amend Chapter 

One of the Listed Company Manual To 

Modify the Provisions Relating to 

Direct Listings 

December 22, 2020. 

I. Introduction 

On December 11, 2019, New York 

Stock Exchange LLC (‘‘NYSE’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Exchange Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to amend Chapter One of the 

Listed Company Manual (‘‘Manual’’) to 

modify the provisions relating to direct 

listings.3 Pursuant to the proposal, 

NYSE would allow an issuer, at the time 

of an initial listing on the Exchange, to 

conduct a primary offering as part of a 

direct listing without conducting a firm 

commitment underwritten offering. 

On August 26, 2020, the Commission, 

acting through authority delegated to 

the Division of Trading and Markets 

(‘‘Division’’),4 approved the proposed 

rule change, as modified by Amendment 

No. 2 (‘‘Approval Order’’).5 On 

September 8, 2020, the Council of 

Institutional Investors (‘‘CII’’ or 

‘‘Petitioner’’) filed a petition for review 

of the Approval Order (‘‘Petition for 

Review’’). Pursuant to Commission Rule 

of Practice 431(e), the Approval Order 

was stayed by the filing with the 

Commission of a notice of intention to 

petition for review.6 On September 25, 

2020, the Commission issued a 

scheduling order, pursuant to 

Commission Rule of Practice 431, 

granting the Petition for Review of the 

Approval Order and providing until 

October 16, 2020, for any party or other 

person to file a written statement in 

support of, or in opposition to, the 

Approval Order.7 On October 16, 2020, 

NYSE submitted a written statement in 

support of the Approval Order.8

The Commission has conducted a de 

novo review of NYSE’s proposal, giving 

careful consideration to the entire 

record—including NYSE’s amended 

proposal, the Petition for Review, and 

all comments and statements 

submitted—to determine whether the 

proposal is consistent with the 

Exchange Act and the rules and 

regulations issued thereunder. Under 

Section 19b(2)(C) of the Exchange Act, 

the Commission must approve the 

proposed rule change of a selfregulatory organization (‘‘SRO’’) if the 

Commission finds that the proposed 

rule change is consistent with the 

Exchange Act and the applicable rules 

and regulations thereunder; if it does 

not make such a finding, the 

Commission must disapprove the 

proposed rule change.9 Additionally, 

under Rule 700(b)(3) of the 

Commission’s Rules of Practice, the 

‘‘burden to demonstrate that a proposed 

rule change is consistent with the 

Exchange Act and the rules and 

regulations issued thereunder . . . is on 

the self-regulatory organization that 

proposed the rule change.’’ 10 Further, 

‘‘the description of a proposed rule 

change, its purpose and operation, its 

effect, and a legal analysis of its 

consistency with applicable 

requirements must all be sufficiently 

detailed and specific to support an 

affirmative Commission finding.’’ 11

Finally, ‘‘[a]ny failure of the selfregulatory organization to provide the 

information elicited by Form 19b–4 may 

result in the Commission not having a 

sufficient basis to make an affirmative 

finding that a proposed rule change is 

consistent with the Exchange Act and 

the rules and regulations issued 

thereunder that are applicable to the 

self-regulatory organization.’’ 12

For the reasons discussed herein, the 

Commission has determined that NYSE 

has met its burden to show that the 

proposed rule change is consistent with 

the Exchange Act. We thus set aside the 

Approval Order and approve NYSE’s 

proposed rule change, as amended. 

Section 6(b)(5) of the Exchange Act 

requires that the rules of a national 

securities exchange be designed to 


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13 15 U.S.C. 78f(b)(5). 

14See Section 102.01B, Footnote (E) of the 

Manual. 

15The reference to a registration statement refers 

to an effective registration statement filed pursuant 

to the Securities Act of 1933 (‘‘Securities Act’’). 

16See Section 102.01B, Footnote (E) of the 

Manual. See also Exchange Act Release No. 82627 

(Feb. 2, 2018), 83 FR 5650 (Feb. 8, 2018) (SR– 

NYSE–2017–30) (‘‘NYSE 2018 Order’’) (approving 

proposed rule change to amend Section 102.01B of 

the Manual to modify the provisions relating to the 

qualifications of companies listing without a prior 

Exchange Act registration in connection with an 

underwritten IPO and amend the Exchange’s rules 

to address the opening procedures on the first day 

of trading for such securities). 

17See proposed Section 102.01B, Footnote (E) of 

the Manual. Under the proposal, the Exchange 

would specify that such company may have 

previously sold common equity securities in ‘‘one 

or more’’ private placements. The Exchange also 

has proposed to move the description of this type 

of direct listing as involving a company ‘‘where 

such company is listing without a related 

underwritten offering upon effectiveness of a 

registration statement registering only the resale of 

shares sold by the company in earlier private 

placements’’ so that this description appears in 

conjunction with the definition of ‘‘Selling 

Shareholder Direct Floor Listing.’’ See id. 

18See proposed Section 102.01B, Footnote (E) of 

the Manual. A Primary Direct Floor Listing would 

include any such listing in which either (i) only the 

company itself is selling shares in the opening 

auction on the first day of trading; or (ii) the 

company is selling shares and selling shareholders 

may also sell shares in such opening auction. See 

id. 

19See proposed Section 102.01B, Footnote (E) of 

the Manual. 

20See proposed Section 102.01B, Footnote (E) of 

the Manual. The Exchange will attribute a market 

value of publicly-held shares to the company equal 

to the lesser of: (i) The value calculable based on 

the Valuation; and (ii) the value calculable based on 

the most recent trading price in a Private Placement 

Market. See Section 102.01B, Footnote (E) of the 

Manual. For specific requirements regarding the 

Valuation and the independence of the valuation 

agent conducting such Valuation, see Section 

102.01B, Footnote (E) of the Manual. Section 

102.01B, Footnote (E) of the Manual also sets forth 

specific factors for relying on a Private Placement 

Market price. Generally, the Exchange will only rely 

on a Private Placement Market price if it is 

consistent with a sustained history over a several 

month period prior to listing evidencing a market 

value in excess of the Exchange’s market value 

requirement. 

21See Section 102.01B, Footnote (E) of the 

Manual. Shares held by directors, officers, or their 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to foster 

cooperation and coordination with 

persons engaged in regulating, clearing, 

settling, processing information with 

respect to, and facilitating transactions 

in securities, to remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest; and 

are not designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers, or to 

regulate by virtue of any authority 

conferred by the Exchange Act matters 

not related to the purposes of the 

Exchange Act or the administration of 

an exchange.13

The record supports a finding that 

NYSE’s proposal is consistent with 

these requirements. In particular, based 

on that record, the Commission 

concludes that, consistent with Section 

6(b)(5) of the Exchange Act, NYSE’s 

proposal will prevent fraudulent and 

manipulative acts and practices, 

promote just and equitable principles of 

trade, remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general, will protect 

investors and the public interest; and 

will not permit unfair discrimination 

between customers, issuers, brokers, or 

dealers, and is not designed to regulate 

by virtue of the Exchange Act matters 

not related to the purposes of the 

Exchange Act or the administration of 

an exchange. 

II. Description of the Proposal 

In an initial public offering (‘‘IPO’’) 

underwritten on a firm commitment 

basis, an underwriter or group of 

underwriters enter into an underwriting 

agreement with the issuer in which they 

commit to take and pay for a specified 

amount of shares at a set price. The 

underwriters’ purchase price reflects a 

discount, or spread, to the public 

offering price, which is negotiated 

between the issuer and the 

underwriters. The underwriters 

purchase the securities at the agreed 

upon discount and then resell the 

securities to the initial investors at the 

public offering price prior to the 

opening of trading. The underwriters 

and the issuer generally determine the 

public offering price and the discount 

based on indications for interest from 

prospective initial purchasers, which 

typically are, in large part, institutional 

investors with ongoing relationships 

with the underwriters. When the 

securities begin trading on an exchange, 

the opening price is determined based 

on orders to buy and sell the securities 

and may vary significantly from the 

initial public offering price. In a direct 

listing, in contrast, there is no initial 

sale to an underwriter or pre-opening 

sale by the underwriter to the initial 

purchasers. Instead, initial sales are 

conducted through the exchange, with 

the prices determined based on 

matching buy and sell orders and in 

accordance with applicable listing rules. 

Section 102.01B, Footnote (E) of the 

Manual states that the Exchange 

generally expects to list companies in 

connection with a firm commitment 

underwritten IPO, upon transfer from 

another market, or pursuant to a spinoff, but also allows for the possibility of 

using a direct listing, as described 

below.14 Currently, Footnote (E) states 

that the Exchange recognizes that 

companies that have not previously had 

their common equity securities 

registered under the Exchange Act, but 

that have sold common equity securities 

in a private placement, may wish to list 

their common equity securities on the 

Exchange at the time of effectiveness of 

a registration statement 15 filed solely for 

the purpose of allowing existing 

shareholders to sell their shares.16 The 

Exchange has proposed to define this 

type of direct listing already permitted 

by the Exchange’s rules as a ‘‘Selling 

Shareholder Direct Floor Listing.’’ 17

The Exchange has proposed to recognize 

an additional type of direct listing in 

which a company that has not 

previously had its common equity 

securities registered under the Exchange 

Act would list its common equity 

securities on the Exchange at the time 

of effectiveness of a registration 

statement pursuant to which the 

company itself would sell shares in the 

opening auction on the first day of 

trading on the Exchange in addition to, 

or instead of, facilitating sales by selling 

shareholders (a ‘‘Primary Direct Floor 

Listing’’).18 Under the proposal, the 

Exchange would, on a case-by-case 

basis, exercise discretion to list 

companies through a Selling 

Shareholder Direct Floor Listing or a 

Primary Direct Floor Listing.19

With respect to a Selling Shareholder 

Direct Floor Listing, the Exchange 

proposal retains the existing standards 

regarding how the Exchange will 

determine whether a company has met 

its market value of publicly-held shares 

listing requirement. The Exchange will 

continue to determine that such 

company has met the $100 million 

aggregate market value of publicly-held 

shares requirement based on a 

combination of both (i) an independent 

third-party valuation (‘‘Valuation’’) of 

the company; and (ii) the most recent 

trading price for the company’s common 

stock in a trading system for 

unregistered securities operated by a 

national securities exchange or a 

registered broker-dealer (‘‘Private 

Placement Market’’).20 Alternatively, in 

the absence of any recent trading in a 

Private Placement Market, the Exchange 

will determine that such company has 

met its market value of publicly-held 

shares requirement if the company 

provides a Valuation evidencing a 

market value of publicly-held shares of 

at least $250 million.21


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Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 85809 

immediate families and other concentrated holdings 

of 10 percent or more are excluded in calculating 

the number of publicly-held shares. See Section 

102.01A, Footnote (B) of the Manual. 

22See proposed Section 102.01B, Footnote (E) of 

the Manual. 

23See proposed Section 102.01B, Footnote (E) of 

the Manual. The Exchange states that, for example, 

if the company is selling five million shares in the 

opening auction, there are 45 million publicly-held 

shares issued and outstanding immediately prior to 

listing, and the lowest price of the price range 

disclosed in the company’s registration statement is 

$10 per share, then the Exchange will attribute to 

the company a market value of publicly-held shares 

of $500 million. See Notice, 85 FR at 39247. 

24See Notice, 85 FR at 39250. 

25See Notice, 85 FR at 39250. 

26See Notice, 85 FR at 39247. The Exchange 

states that these types of inside investors may 

purchase shares sold by the company in the 

opening auction, and purchase shares sold by other 

shareholders or sell their own shares in the opening 

auction and in trading after the opening auction, to 

the extent not inconsistent with general antimanipulation provisions, Regulation M, and other 

applicable securities laws. See id. 

27See Notice, 85 FR at 39247. 

28See Notice, 85 FR at 39247. 

29See Notice, 85 FR at 39247. 

30Under current Rule 1.1(f), the term ‘‘Direct 

Listing’’ means ‘‘a security that is listed under 

Footnote (E) to Section 102.01B of the Listed 

Company Manual.’’ The Exchange has proposed to 

modify this definition to specify that the term 

‘‘Direct Listing’’ may refer to either a Selling 

Shareholder Direct Floor Listing or a Primary Direct 

Floor Listing. See proposed Rule 1.1(f). See also 

Rule 7.35(a)(1) for the definition of ‘‘Auction’’ and 

Rule 7.35(a)(1)(E) for the definition of ‘‘Direct 

Listing Auction.’’ 

31See proposed Rule 7.31(c)(1)(D). See also Rule 

7.31(a)(2) for the definition of ‘‘Limit Order.’’ 

32See proposed Rule 7.31(c)(1)(D)(i)–(v). 

33 ‘‘Auction Price’’ is defined as the price at 

which an Auction is conducted. See Rule 7.35(a)(5). 

The Exchange states that because an IDO Order 

would not be entered by the DMM, the Exchange 

has proposed to include IDO Orders among the 

types of Auction-Only Orders that are not available 

to DMMs. See Notice, 85 FR at 39248, n.21. See also 

proposed Rule 7.31(c). An ‘‘Auction-Only Order’’ is 

a Limit or Market Order that is to be traded only 

in an auction pursuant to the Rule 7.35 Series (for 

Auction-Eligible Securities) or routed pursuant to 

Rule 7.34 (for UTP Securities). See Rule 7.31(c). See 

also Rule 7.31(a)(1) for the definition of ‘‘Market 

Order.’’ 

34See proposed Rule 7.35A(g)(2). A buy (sell) 

order is ‘‘better-priced’’ if it is priced higher (lower) 

than the Auction Price, and this includes all sell 

Market Orders and Market-on-Open Orders. See 

Rule 7.35(a)(5)(A). See also Rule 7.31(c)(1)(B) for 

the definition of ‘‘Market-on-Open Order.’’ A buy 

(sell) order is ‘‘at-priced’’ if it is priced equal to the 

Auction Price. See Rule 7.35(a)(5)(B). 

35See Notice, 85 FR at 39249. 

With respect to a Primary Direct Floor 

Listing, the Exchange has proposed that 

it will deem a company to have met the 

applicable aggregate market value of 

publicly-held shares requirement if the 

company will sell at least $100 million 

in market value of the shares in the 

Exchange’s opening auction on the first 

day of trading on the Exchange.22

Alternatively, where a company is 

conducting a Primary Direct Floor 

Listing and will sell shares in the 

opening auction with a market value of 

less than $100 million, the Exchange 

will determine that such company has 

met its market value of publicly-held 

shares requirement if the aggregate 

market value of the shares the company 

will sell in the opening auction on the 

first day of trading and the shares that 

are publicly held immediately prior to 

the listing is at least $250 million, with 

such market value calculated using a 

price per share equal to the lowest price 

of the price range established by the 

issuer in its registration statement.23

According to the Exchange, a 

company may list on the Exchange in 

connection with a traditional IPO with 

a market value of publicly-held shares 

of $40 million and, in the Exchange’s 

experience in listing IPOs, a liquid 

trading market develops after listing for 

issuers with a much smaller value of 

publicly-held shares than the Exchange 

anticipates would exist after the 

opening auction in a Primary Direct 

Floor Listing under the proposed market 

value of publicly-held shares 

requirements.24 Consequently, the 

Exchange believes that these 

requirements would provide that any 

company conducting a Primary Direct 

Floor Listing would be of a suitable size 

for Exchange listing and that there 

would be sufficient liquidity for the 

security to be suitable for auction 

market trading.25 The Exchange also 

states that, with the exception of the 

proposed requirement for Primary 

Direct Floor Listings, shares held by 

officers, directors, or owners of more 

than 10% of the company stock are not 

included in calculations of publiclyheld shares for purposes of Exchange 

listing rules.26 The Exchange states that 

such investors may acquire in secondary 

market trades shares sold by the issuer 

in a Primary Direct Floor Listing that 

were included when calculating 

whether the issuer meets the market 

value of publicly-held shares initial 

listing requirement.27 The Exchange 

further states that it believes that 

because of the enhanced publicly-held 

shares requirement for listing in 

connection with a Primary Direct Floor 

Listing, which is much higher than the 

Exchange’s $40 million requirement for 

a traditional underwritten IPO, and the 

neutral nature of the opening auction 

process, companies using a Primary 

Direct Floor Listing would have an 

adequate public float and liquid trading 

market after completion of the opening 

auction.28

The Exchange states that any 

company listing in connection with a 

Primary Direct Floor Listing or a Selling 

Shareholder Direct Floor Listing would 

continue to be subject to and need to 

meet all other applicable initial listing 

requirements. According to the 

Exchange, this would include the 

requirements of Section 102.01A of the 

Manual to have 400 round lot 

shareholders and 1.1 million publiclyheld shares outstanding at the time of 

initial listing, and the requirement of 

Section 102.01B of the Manual to have 

a price per share of at least $4.00 at the 

time of initial listing.29

The Exchange has proposed a new 

order type to be used by the issuer in 

a Primary Direct Floor Listing and rules 

regarding how that new order type 

would participate in a Direct Listing 

Auction.30 Specifically, the Exchange 

has proposed to introduce an Issuer 

Direct Offering Order (‘‘IDO Order’’), 

which would be a Limit Order to sell 

that is to be traded only in a Direct 

Listing Auction for a Primary Direct 

Floor Listing.31 The IDO Order would 

have the following requirements: (1) 

Only one IDO Order may be entered on 

behalf of the issuer and only by one 

member organization; (2) the limit price 

of the IDO Order must be equal to the 

lowest price of the price range 

established by the issuer in its effective 

registration statement (the price range is 

defined as the ‘‘Primary Direct Floor 

Listing Auction Price Range’’); (3) the 

IDO Order must be for the quantity of 

shares offered by the issuer, as disclosed 

in the prospectus in the effective 

registration statement; (4) the IDO Order 

may not be cancelled or modified; and 

(5) the IDO Order must be executed in 

full in the Direct Listing Auction.32

Consistent with current rules, a 

Designated Market Maker (‘‘DMM’’) 

would effectuate a Direct Listing 

Auction manually, and the DMM would 

be responsible for determining the 

Auction Price.33 Under the proposal, the 

DMM would not conduct a Direct 

Listing Auction for a Primary Direct 

Floor Listing if (1) the Auction Price 

would be below the lowest price or 

above the highest price of the Primary 

Direct Floor Listing Auction Price 

Range; or (2) there is insufficient buy 

interest to satisfy both the IDO Order 

and all better-priced sell orders in full.34

The Exchange states that if there is 

insufficient buy interest and the DMM 

cannot price the Auction and satisfy the 

IDO Order as required, the Direct 

Auction would not proceed and such 

security would not begin trading.35 The 

Exchange represents that, if a Direct 

Listing Auction cannot be conducted, 

the Exchange would notify market 

participants via a Trader Update that the 

Primary Direct Floor Listing has been 

cancelled and any orders for that 


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36See Notice, 85 FR at 39249. 

37See Rule 7.35A(h)(1) and (2). 

38See proposed Rule 7.35A(h)(4). 

39See proposed Rule 7.35A(h)(4). 

40See Notice, 85 FR at 39249. 

41The ‘‘Applicable Price Range’’ for determining 

whether to publish a pre-opening indication, with 

limited exception, is 5% for securities with an 

Indication Reference Price over $3.00 and $0.15 for 

securities with an Indication Reference Price equal 

to or lower than $3.00. See Rule 7.35A(d)(3)(A). 

42See Rule 7.35A(d)(1)(A). 

43See proposed Rule 7.35A(d)(2)(A)(iv). 

44See proposed Rule 7.35A(g)(1). The Exchange 

has proposed a non-substantive change to this 

provision to modify a reference to ‘‘Private 

Placement’’ to utilize the defined term ‘‘Private 

Placement Market.’’ See id. 

45See Notice, 85 FR at 39249. 

46See proposed Rule 7.35A(d)(2)(A)(v). The 

Exchange states that, for example, if the Primary 

Direct Floor Listing Auction Price Range is $10.00 

to $20.00, then the Indication Reference Price 

would be $10.00. See Notice, 85 FR at 39248, n.22. 

47See Notice, 85 FR at 39249. 

48See Notice, 85 FR at 39249 (citing Rule 2020, 

which provides that ‘‘No member or member 

organization shall effect any transaction in, or 

induce the purchase or sale of, any security by 

means of any manipulative, deceptive or other 

fraudulent contrivance’’). 

49See Notice, 85 FR at 39249. The Exchange 

further represents that it expects to issue regulatory 

guidance in connection with a company conducting 

a Primary Direct Floor Listing, and that such 

regulatory guidance would include a reminder to 

member organizations that activities in connection 

with a Primary Direct Floor Listing, like activities 

in connection with other listings, must be 

conducted in a manner not inconsistent with 

Regulation M and other anti-manipulation 

provisions of the federal securities laws and Rule 

2020. See id. at 39249, n.28. 

50See proposed Rule 7.35A, Commentary .10. 

51See proposed Rule 7.35C(a), (a)(3), (b)(1), and 

(b)(3). 

52See Notice, 85 FR at 39249. 

53 15 U.S.C. 78f(b)(5). 

54 15 U.S.C. 78f(b). In approving this proposed 

rule change, the Commission has considered the 

proposed rule change’s impact on efficiency, 

competition, and capital formation. See 15 U.S.C. 

78c(f). 

security that had been entered on the 

Exchange, including the IDO Order, 

would be cancelled back to the entering 

firms.36

Currently, Rule 7.35A(h) generally 

provides that, once an Auction Price has 

been determined, better-priced orders 

are guaranteed to participate in the 

Auction at the Auction Price, whereas 

at-priced orders are not guaranteed to 

participate and will be allocated 

according to specified priority rules.37

The Exchange has proposed that an IDO 

Order would be guaranteed to 

participate in the Direct Listing Auction 

at the Auction Price.38 If the limit price 

of the IDO Order is equal to the Auction 

Price, the IDO Order would have 

priority at that price.39 The Exchange 

states that providing priority to an atpriced IDO Order would increase the 

potential for the IDO Order to be 

executed in full, and therefore for the 

Primary Direct Floor Listing to 

proceed.40

In addition, the Exchange has 

proposed to specify that two existing 

provisions would apply in the case of a 

Selling Shareholder Direct Floor Listing 

only. Currently, a DMM will publish a 

pre-opening indication if the Auction 

Price is anticipated to be a change of 

more than the Applicable Price Range 41

from a specified Indication Reference 

Price.42 Under the proposal, the 

Indication Reference Price for a security 

that is a Selling Shareholder Direct 

Floor Listing that has had recent 

sustained trading in a Private Placement 

Market prior to listing would be the 

most recent transaction price in that 

market or, if none, would be a price 

determined by the Exchange in 

consultation with a financial advisor to 

the issuer of such security.43 Further, 

when facilitating the opening on the 

first day of trading of a Selling 

Shareholder Direct Floor Listing that 

has not had a recent sustained history 

of trading in a Private Placement Market 

prior to listing, the DMM would consult 

with a financial advisor to the issuer of 

such security in order to effect a fair and 

orderly opening of such security.44 The 

Exchange states that these provisions 

are not applicable to a Primary Direct 

Floor Listing because, unlike for a 

Selling Shareholder Direct Floor Listing, 

the registration statement for a Primary 

Direct Floor Listing would include a 

price range within which the company 

anticipates selling the shares it is 

offering.45

In the case of a Primary Direct Floor 

Listing, the Exchange has proposed a 

new measure of the Indication 

Reference Price. Specifically, for a 

security that is offered in a Primary 

Direct Floor Listing, the Indication 

Reference Price would be the lowest 

price of the Primary Direct Floor Listing 

Auction Price Range.46

The Exchange states that any services 

provided by a financial advisor to the 

issuer of a security listing in connection 

with a Selling Shareholder Direct Floor 

Listing or a Primary Direct Floor Listing 

(the ‘‘financial advisor’’) and the DMM 

assigned to that security must provide 

such services in a manner that is 

consistent with all federal securities 

laws, including Regulation M and other 

anti-manipulation requirements.47 The 

Exchange states that, for example, when 

a financial advisor provides a 

consultation to the Exchange as required 

by Rule 7.35A(d)(2)(a)(iv), when the 

DMM consults with a financial advisor 

in connection with Rule 7.35A(g)(1), or 

when a financial advisor otherwise 

assists or consults with the DMM as to 

pricing or opening of trading in a 

Selling Shareholder Direct Floor Listing 

or Primary Direct Floor Listing, the 

financial advisor and DMM will not act 

inconsistent with Regulation M and 

other anti-manipulation provisions of 

the federal securities laws, or Exchange 

Rule 2020.48 The Exchange represents 

that it has retained the Financial 

Industry Regulatory Authority 

(‘‘FINRA’’) pursuant to a regulatory 

services agreement to monitor such 

compliance with Regulation M and 

other anti-manipulation provisions of 

the federal securities laws, and Rule 

2020.49 The Exchange has proposed a 

new commentary that states that, in 

connection with a Selling Shareholder 

Direct Floor Listing, the financial 

advisor to the issuer of the security 

being listed and the DMM assigned to 

such security are reminded that any 

consultation that the financial advisor 

provides to the Exchange as required by 

Rule 7.35A(d)(2)(A)(iv) and any 

consultation between the DMM and 

financial advisor as required by Rule 

7.35A(g)(1) is to be conducted in a 

manner that is consistent with the 

federal securities laws, including 

Regulation M and other antimanipulation requirements.50

Finally, the Exchange has proposed to 

remove references to Direct Listing 

Auctions from Rule 7.35C, which 

concerns Exchange-facilitated 

auctions.51 The Exchange states that, 

because of the importance of the DMM 

to the Direct Listing Auction, if a DMM 

is unable to manually facilitate a Direct 

Listing Auction, the Exchange would 

not proceed with a Selling Shareholder 

Direct Floor Listing or a Primary Direct 

Floor Listing.52

III. Discussion and Commission 

Findings 

The Commission finds that the 

proposed rule change, as modified by 

Amendment No. 2, is consistent with 

Section 6(b)(5) of the Exchange Act,53

which requires, among other things, that 

the rules of a national securities 

exchange be designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest; and are not designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers.54

The Commission has consistently 

recognized the importance and 

significance of national securities 


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55The Commission has stated in approving 

national securities exchange listing requirements 

that the development and enforcement of adequate 

standards governing the listing of securities on an 

exchange is an activity of critical importance to the 

financial markets and the investing public. In 

addition, once a security has been approved for 

initial listing, maintenance criteria allow an 

exchange to monitor the status and trading 

characteristics of that issue to ensure that it 

continues to meet the exchange’s standards for 

market depth and liquidity so that fair and orderly 

markets can be maintained. See, e.g., NYSE 2018 

Order, 83 FR at 5653, n.53; Exchange Act Release 

Nos. 81856 (Oct. 11, 2017), 82 FR 48296, 48298 

(Oct. 17, 2017) (SR–NYSE–2017–31); 81079 (July 5, 

2017), 82 FR 32022, 32023 (July 11, 2017) (SR– 

NYSE–2017–11). The Commission has stated that 

adequate listing standards, by promoting fair and 

orderly markets, are consistent with Section 6(b)(5) 

of the Exchange Act, in that they are, among other 

things, designed to prevent fraudulent and 

manipulative acts and practices, promote just and 

equitable principles of trade, and protect investors 

and the public interest. See, e.g., NYSE 2018 Order, 

83 FR at 5653, n.53; Exchange Act Release Nos. 

87648 (Dec. 3, 2019), 84 FR 67308, 67314, n.42 

(Dec. 9, 2019) (SR–NASDAQ–2019–059); 88716 

(Apr. 21, 2020), 85 FR 23393, 23395, n.22 (Apr. 27, 

2020) (SR–NASDAQ–2020–001). 

56 ‘‘Meaningful listing standards also are 

important given investor expectations regarding the 

nature of securities that have achieved a national 

securities exchange listing, and the role of a 

national securities exchange in overseeing its 

market and assuring compliance with its listing 

standards.’’ Exchange Act Release No. 65708 (Nov. 

8, 2011), 76 FR 70799, 70802 (Nov. 15, 2011) (SR– 

NASDAQ–2011–073). See also Exchange Act 

Release Nos. 65709 (Nov. 8, 2011), 76 FR 70795 

(Nov. 15, 2011) (SR–NYSE–2011–38); 88389 (Mar. 

16, 2020), 85 FR 16163 (Mar. 20, 2020) (SR– 

NASDAQ–2019–089). The Exchange, in addition to 

requiring companies seeking to list to meet the 

quantitative listing standards and once listed the 

quantitative continued listing standards, also 

requires listed companies to meet other qualitative 

requirements. See, e.g., Section 3, Corporate 

Responsibility, of the Manual. 

57See Section 102.01B, Footnote (E) of the 

Manual. See also NYSE 2018 Order, 83 FR at 5654. 

58See NYSE Listed Company Manual Section 

102.01B, Footnote (E) of the Manual which states 

generally that the Exchange expects to list 

companies in connection with a firm commitment 

underwritten IPO, upon transfer from another 

market, or pursuant to a spin-off. Section 102.01B, 

Footnote (E) also states, however, that ‘‘the 

Exchange recognizes that some companies that have 

not previously had their common equity securities 

registered under the Exchange Act, but which have 

sold common equity securities in a private 

placement, may wish to list their common equity 

securities on the Exchange at the time of 

effectiveness of a registration statement filed solely 

for the purpose of allowing existing shareholders to 

sell their shares.’’ 

59See Letter from Stephen John Berger, Managing 

Director, Global Head of Government & Regulatory 

Policy, Citadel Securities (Feb. 18, 2020) (‘‘Citadel 

Letter’’), at 1; Letter from Paul Abrahimzadeh and 

Russell Chong, Co-Heads, U.S. Equity Capital 

Markets, Citigroup Capital Markets Inc. (Feb. 26, 

2020) (‘‘Citigroup Letter’’); Letter from Matthew B. 

Venturi, Founder & CEO, ClearingBid, Inc. (Jan. 21, 

2020) (‘‘ClearingBid Letter’’), at 5; Letter from David 

Ludwig, Head of Americas Equity Capital Markets, 

Goldman Sachs Group, Inc. (Feb. 7, 2020) 

(‘‘Goldman Sachs Letter’’); Letter from Burke 

Dempsey, Executive Vice President Head of 

Investment Banking, Wedbush Securities (Apr. 20, 

2020) (‘‘Wedbush Letter’’). 

60See Citigroup Letter. This commenter also 

stated its belief that the direct listing format would 

afford broad participation in the capital formation 

process and help establish a shareholder base that 

has a long-term interest in partnering with 

management teams. See id. 

61See Goldman Sachs Letter. This commenter 

also referenced the recent direct listings by Spotify 

Technology S.A. and Slack Technologies, Inc., and 

expressed the view that the development of a direct 

listing approach to becoming a public company has 

been a significant step forward in providing 

companies greater choice in their path to going 

public, and that the ability to include a primary 

capital raise in a direct listing will further enhance 

this flexibility. See id. See also Citadel Letter, at 1; 

Wedbush Letter. 

exchange listing standards. Among 

other things, such listing standards help 

ensure that exchange listed companies 

will have sufficient public float, 

investor base, and trading interest to 

provide the depth and liquidity 

necessary to promote fair and orderly 

markets.55 The standards, collectively, 

also provide investors and market 

participants with some level of 

assurance that the listed company has 

the resources, policies, and procedures 

to comply with the requirements of the 

Exchange Act and Exchange rules.56

The Exchange’s listing standards 

currently provide the Exchange with 

discretion to list a company whose stock 

has not been previously registered 

under the Exchange Act, where such 

company is listing in connection with a 

Selling Shareholder Direct Floor 

Listing.57 The Exchange has proposed to 

allow companies to list in connection 

with a Primary Direct Floor Listing, 

which would for the first time provide 

a company the option, without a firm 

commitment underwritten offering, of 

selling shares to raise capital in the 

opening auction upon initial listing on 

the Exchange.58

Several commenters expressed 

support for the proposed expansion of 

direct listings to permit a primary 

offering.59 One commenter, for example, 

stated that it supports alternative 

formats for IPOs, including direct listing 

proposals like the one proposed by the 

Exchange, and expressed the view that 

issuers should be offered choices that 

match their objectives so long as they 

protect the integrity of the markets and 

are fair and clear to investors, using 

transparent processes.60 Another 

commenter believed that allowing for 

multiple pathways for private 

companies to achieve exchange listing 

would encourage more companies to 

participate in public equity markets and 

provide investors a broader array of 

attractive investment opportunities.61

In Amendment No. 2, the Exchange 

made several modifications to its 

proposal that were designed to clarify 

the role of the issuer and financial 

advisor in a direct listing to explain how 

compliance with various rules and 

regulations will be addressed. As 

discussed in more detail below, these 

changes: (i) Help to ensure that the 

issuer cannot unduly influence the 

opening price through a new order type 

that cannot be modified or canceled; (ii) 

highlight that financial advisors 

involved with direct listings cannot 

violate the anti-manipulation provisions 

of the Exchange Act, including 

Regulation M; and (iii) highlight that the 

Exchange has retained FINRA pursuant 

to a regulatory services agreement to 

monitor compliance with Regulation M 

and other anti-manipulation provisions 

of the federal securities laws. We 

conclude that the proposal, as amended 

by Amendment No. 2, supports a 

finding that the proposal is consistent 

with the Exchange Act. More 

specifically, the following aspects of the 

proposal demonstrate that it is 

reasonably designed to be consistent 

with the protection of investors and the 

maintenance of fair and orderly markets, 

as well as the facilitation of capital 

formation: (i) Addition of the IDO Order 

type and other requirements which 

address how the issuer will participate 

in the opening auction; (ii) discussion of 

the role of financial advisors; (iii) 

addition of the Commentary that 

provides that specified activities are to 

be conducted in a manner that is 

consistent with the federal securities 

laws, including Regulation M and other 

anti-manipulation requirements; (iv) 

retaining FINRA to monitor compliance 

with Regulation M and other antimanipulation provisions of the federal 

securities laws and NYSE Rule 2020; (v) 

clarification of how market value will be 

determined for qualifying the 

company’s securities for listing; and (vi) 

elimination of the grace period for 

meeting certain listing requirements. 

The Commission addresses below the 

relevant concerns, identified by either 

commenters or the Commission in the 

OIP, relating to NYSE’s proposal to 

allow direct listings with a primary 

offering. First, the Commission 

addresses issues identified in the OIP 

related to the aggregate market value of 

publicly-held shares requirement and 

whether the proposed standards will 

help facilitate adequate liquidity for 

companies listing in a Primary Direct 

Floor Listing. Second, the Commission 

addresses issues identified in the OIP 

about the initial listing opening auction 

process for Primary Direct Floor Listings 

and discusses financial advisors. 

Finally, the Commission addresses 

commenters’ concerns about whether 

the proposal is consistent with investor 

protection and the public interest given 

the lack of traditional underwriter 


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62Notice, 85 FR at 39250. As described above, in 

determining that a company has met the market 

value of publicly-held shares standards the 

Exchange will consider the market value of all 

shares sold by the company in the opening auction, 

rather than excluding shares that may be purchased 

by officers, directors, or owners of more than 10% 

of the company’s common stock, notwithstanding 

that generally the Exchange’s listing standards 

exclude shares held by such insiders from its 

calculations of publicly-held shares. The Exchange 

believes that the Primary Direct Floor Listing will 

have an adequate public float and liquid trading 

market after completion of the opening auction 

given the higher market value requirement than that 

required for listing an underwritten IPO. See 

Notice, 85 FR at 39247. 

63See Notice, 85 FR at 39247 and note 23, supra, 

and accompanying text. 

64See Citadel Letter, at 1. 

65See Letter from Jeffrey P. Mahoney, General 

Counsel, Council of Institutional Investors (July 16, 

2020) (‘‘CII Letter III’’), at 5. 

66See NYSE Statement, at 12 (citing Section 

102.01B of the Manual; Approval Order at 16–17). 

According to the Exchange, it generally requires 

companies listing on the Exchange in connection 

with an IPO to have a market value of publicly-held 

shares of at least $40 million, whereas the proposal 

would require a company listing in conjunction 

with a Primary Direct Floor Listing to either (1) sell 

at least $100 million of its listed securities in the 

opening auction; or (2) have an aggregate market 

value of publicly-held shares immediately prior to 

listing, together with the market value of shares the 

company sells in the opening auction, of at least 

$250 million. 

67Almost half of exchange-listed IPOs in the 

recent year had proceeds that fell below the $100 

million threshold. Using information from 

Thomson Reuters SDC Platinum New Issues 

database, the Commission staff concluded that, 

among 146 exchange-listed IPOs conducted during 

the 2019 calendar year, the median offer size was 

$106.7 million. Further, staff concluded that 

approximately 47.9 percent of the companies that 

went public via IPO (12.8 percent for NYSE IPOs 

and 60.7 percent for NASDAQ IPOs) had an offer 

size that fell below $100 million. Similarly, an Ernst 

& Young report states that during 2019, the median 

proceeds raised in exchange-listed IPOs in the 

United States were approximately $110 million. See 

Global IPO trends: Q4 2019, Ernst & Young, 

available at https://assets.ey.com/content/dam/eysites/ey-com/en_gl/topics/growth/ey-global-ipotrends-q4-2019.pdf. 

68The Exchange did not provide the data 

specifically referenced by a commenter. See supra 

note 65 and accompanying text. However, the 

proposed minimum market value requirements are 

comparable to or higher than those listing standards 

applied by the Exchange in other contexts. See 

supra notes 20–21 and 66 and accompanying text. 

69The existing $40 million market value 

requirement in Exchange Rules (Section 102.01B of 

the Manual) is a longstanding requirement that has 

supported the listing of companies on the Exchange 

that are suitable for listing and have existed since 

at least 2009. See Section 102.01B of the Manual. 

See Exchange Act Release No. 60501 (Aug. 13, 

2009), 74 FR 42348 (Aug. 21, 2009) (SR–NYSE– 

2009–80) (lowering the aggregate market value of 

publicly-held shares for the listing of IPOs and 

spin-offs from $60 million to $40 million). 

70The Commission previously approved the 

standards for Selling Shareholder Direct Floor 

Listings as supporting listing on the Exchange and 

the maintenance of fair and orderly markets thereby 

protecting investors and the public interest in 

accordance with Section 6(b)(5) of the Exchange 

Act. See NYSE 2018 Order, 83 FR at 5654. 

71See Section 102.01B of the Manual. The 

Commission previously has found that this 

longstanding requirement is suitable for initial 

listing of companies on the Exchange and that the 

standard has supported listings of companies on the 

Exchange over many years. For example, in 1999 

the Commission approved the existing $100 million 

aggregate market value standard of publicly-held 

shares standard that currently applies to listings 

other than IPOs and spin-offs. In approving this 

proposal, the Commission stated its belief that this 

threshold requirement, among others, should 

‘‘ensure that only companies of a certain minimum 

size are included among those listing on the 

Exchange, thereby protecting investors by raising 

the minimum standard for listed companies.’’ 

Exchange Act Release No. 41502 (June 9, 1999), 64 

FR 32588 (June 17, 1999) (SR–NYSE–99–13). The 

1999 rule change also increased to $60 million the 

$40 million requirement that applied to IPOs and 

spin-offs, which is still significantly below the 

requirements being proposed for a Primary Direct 

Floor Listing. Id. As noted supra at note 69, the $60 

million requirement was lowered back to $40 

million in 2009. See Exchange Act Release No. 

60501 (Aug. 13, 2009), 74 FR 42348 (Aug. 21, 2009) 

(SR–NYSE–2009–80). 

involvement in a Primary Direct Floor 

Listing, as well as concerns about 

Securities Act Section 11(a) liability. As 

discussed in greater detail below, the 

Commission concludes that the record 

addresses these concerns and that the 

Exchange has met its burden to 

demonstrate that its proposal is 

consistent with the Exchange Act, and 

therefore finds the proposed rule change 

to be consistent with the Exchange Act. 

A. Aggregate Market Value of PubliclyHeld Shares Requirement 

With respect to the aggregate market 

value of publicly-held shares 

requirement, the Exchange proposes to 

require that it will deem a company to 

have met such requirement if the 

company will sell at least $100 million 

in market value of shares in the 

Exchange’s opening auction on the first 

day of trading. Alternatively, where a 

company will sell shares in the opening 

auction with a market value of less than 

$100 million, the Exchange will deem 

the company to have met such 

requirement if the aggregate market 

value of the shares the company will 

sell in the opening auction on the first 

day of trading and the shares that are 

publicly held immediately prior to 

listing is at least $250 million. 

According to the Exchange, a company 

may list in connection with an IPO with 

a market value of publicly-held shares 

of $40 million and, ‘‘in the Exchange’s 

experience in listing IPOs, a liquid 

trading market develops after listing for 

issuers with a much smaller value of 

publicly-held shares than the Exchange 

anticipates would exist after the 

opening auction in a Primary Direct 

Floor Listing.’’ 62 In Amendment No. 2, 

the Exchange clarified that market value 

would be calculated using a price per 

share equal to the lowest price of the 

price range multiplied by the number of 

shares being offered by the issuer.63

One commenter expressed the view 

that the proposal, as originally noticed 

for comment, appropriately updated the 

publicly-held shares and distribution 

requirements associated with direct 

listings in order to ensure the 

development of a liquid trading 

market.64 Another commenter believed 

that the Exchange should provide data 

to support its conclusion that there 

would be adequate liquidity for a 

security listing in connection with a 

Primary Direct Floor Listing.65 In its 

statement in support of its proposal, the 

Exchange stated that its proposal would 

impose a substantially higher 

capitalization requirement for Primary 

Direct Floor Listings than its rules 

require for traditional IPOs.66

The Commission has determined that 

the Exchange has met its burden to 

show that the proposed aggregate 

market value of publicly-held shares 

requirement provides the Exchange with 

a reasonable level of assurance that the 

company’s market value supports listing 

on the Exchange and the maintenance of 

fair and orderly markets.67 The 

Commission reaches this conclusion 

because the proposed market value 

standard for listing a Primary Direct 

Floor Listing is at least two and a half 

times greater than the market value 

standard that currently exists under 

Exchange rules for an Exchange listing 

of an IPO. The Commission also finds 

that the proposed requirements are also 

comparable to or higher than the 

aggregate market value of publicly-held 

shares required by the Exchange for 

initial listing in other contexts.68

Specifically, the Exchange’s proposed 

minimum market value requirements, 

which are designed in part to ensure 

sufficient liquidity, of $100 million and 

$250 million for Primary Direct Floor 

Listings are, in addition to being higher 

than the $40 million minimum market 

value requirement for IPOs,69

comparable to (i) the $100 million and 

$250 million minimum market value 

requirements for listing a Selling 

Shareholder Direct Floor Listing; 70 and 

(ii) the $100 million requirement for 

aggregate market value of publicly-held 

shares for companies that list other than 

at the time of an IPO, spin-off, or initial 

firm commitment underwritten public 

offering.71

And as described below, using the 

lowest price in the price range 

established by the issuer in its 

registration statement to determine the 

minimum market value is a reasonable 

and conservative approach because the 


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72One commenter expressed general support for 

the proposal and offered a variety of observations 

beyond the scope of the proposal, including with 

respect to the importance of opening auction 

information. See ClearingBid Letter, at 1. 

73 In addition, as discussed above, the Exchange 

proposes that the DMM will publish a pre-opening 

indication in a Primary Direct Floor Listing if the 

auction price is expected to be outside a price range 

around an ‘‘Indication Reference Price’’ equal to the 

low end of the price range reflected in the 

registration statement. The Commission believes 

this is a reasonable and conservative reference price 

because the auction cannot occur at a lower price, 

and if the auction occurs at a higher price the 

proposal errs on the side of requiring opening 

indication information to be disseminated to market 

participants. 

74See supra notes 72–73 and accompanying text. 

See also proposed Rule 7.31(c)(1)(D)(i)–(v) which 

sets forth the requirements the issuer must follow 

in entering the IDO Order and proposed Rule 

7.35A(g)(2) which sets forth the requirements in 

order for the DMM to conduct the direct listing 

auction for a Primary Direct Floor Listing. 

75 In addition, the proposed changes to Rule 

7.35C to remove the references to Direct Listing 

Auction would help ensure that all direct listings 

occur with a DMM that will facilitate the opening 

auction manually, and should help promote fair 

and orderly markets in connection with direct 

listings, because of the role of the DMM in ensuring 

that the conditions to conduct the auction, 

described above, have been met. The proposed 

changes to (i) Section 102.01B of the Manual, 

Footnote (E) to clarify the description of a Selling 

Shareholder Direct Floor Listing, (ii) Rule 1.1(f) to 

amend the definition of ‘‘Direct Listing,’’ and (iii) 

Rule 7.35A(g)(1) to use the defined term ‘‘Private 

Placement Market’’ will also provide clarity to the 

Exchange’s rules, consistent with the protection of 

investors and the public interest under Section 

6(b)(5) of the Exchange Act. 

76See Notice, 85 FR at 39249, and proposed Rule 

7.35A, Commentary .10. See also supra note 36 and 

accompanying text noting that the Exchange will 

issue a regulatory circular to remind member 

organizations that activities in connection with a 

Primary Direct Floor Listing, like activities in 

connection with other listings, must be conducted 

in a manner not inconsistent with Regulation M and 

other anti-manipulation provisions of the federal 

securities laws and NYSE Rule 2020. 

77See, e.g., Letter from Christopher A. Iacovella, 

Chief Executive Officer, ASA (December 12, 2019) 

(‘‘ASA Letter I’’), at 1. 

78See ASA Letter I, at 1–2. This commenter 

believed that allowing companies to raise primary 

capital through a direct listing ‘‘would be a 

complete end run around the traditional 

underwriting process and . . . create a massive 

loophole in the regulatory regime that governs the 

offerings of securities to the public.’’ Id. at 1. In this 

commenter’s view, two recent high-profile direct 

listings—Spotify and Slack—did not work out 

particularly well for retail investors, and a robust 

underwriting process would have uncovered more 

of these companies’ vulnerabilities before these 

securities were offered to the public. See id. at 2. 

Another commenter stated that these direct listings 

may have been successes for private investors, but 

the retail and public investors that purchased stock 

in Spotify and Slack were under water for years, 

and one company is facing a lawsuit because of 

how direct listings are modeled. See Letter from 

Anonymous (June 30, 2020). 

Primary Direct Floor Listing will not 

proceed at a lower price. 

B. Opening Auction Process for Primary 

Direct Floor Listings and Role of 

Financial Advisors 

In the Order Instituting Proceedings, 

the Commission expressed concern that, 

with a Primary Direct Floor Listing, the 

company could be the only seller (or a 

dominant seller) participating in the 

opening auction and thus could be in a 

position to uniquely influence the price 

discovery process, and requested the 

Exchange to explain how its opening 

auction rules would apply in a Primary 

Direct Floor Listing.72 In Amendment 

No. 2, the Exchange proposed to add the 

IDO Order as a new order type to be 

used by the issuer in a Primary Direct 

Floor Listing, and to clarify in its rules 

how the DMM would conduct the 

opening auction for such listings. As 

discussed above, the issuer would be 

required to submit an IDO Order in the 

opening auction with a limit price equal 

to the low end of the Primary Direct 

Floor Listing Auction Price Range, and 

for the full quantity of offered shares, as 

reflected in the registration statement. 

The IDO Order cannot be modified or 

canceled by the issuer once entered. 

Further, the DMM would conduct the 

opening auction only if the auction 

price is within the Primary Direct Floor 

Listing Auction Price Range disclosed in 

the registration statement, and the IDO 

Order and all better-priced sell orders 

can be satisfied in full. If the auction 

price is equal to the limit price of the 

IDO Order (i.e., the low end of the 

Primary Direct Floor Listing Auction 

Price Range), the IDO Order would have 

priority over other sell orders at that 

price.73

The Commission finds that the IDO 

Order and related clarifications 

proposed by the Exchange help to 

clearly define the method by which the 

issuer participates in the opening 

auction, to prevent the issuer from being 

in a position to improperly influence 

the price discovery process,74 and to 

design an auction that is otherwise 

consistent with the disclosures in the 

registration statement. Specifically, the 

issuer would be required to submit an 

IDO Order in the opening auction with 

a limit price equal to the low end of the 

Primary Direct Floor Listing Auction 

Price Range, and for the full quantity of 

offered shares, as reflected in the 

registration statement. Further, the IDO 

Order cannot be modified or canceled 

by the issuer once entered. The 

Commission further finds that it is 

appropriate for the IDO Order to have 

priority over other sell orders at the 

same price if the auction price is at the 

limit price of the IDO Order because the 

auction will not occur at all unless the 

IDO Order is satisfied in full. This 

provision therefore would allow for 

both the issuer’s IDO Order and betterpriced sell orders to be executed in the 

opening auction.75 The IDO Order 

requirements described above mitigate 

concerns about the price discovery 

process in the opening auction and 

provide reasonable assurance that the 

opening auction and subsequent trading 

promote fair and orderly markets and 

that the proposed rules are designed to 

prevent manipulative acts and practices, 

and protect investors and the public 

interest in accordance with Section 

6(b)(5) of the Exchange Act. 

In Amendment No. 2, the Exchange 

added language to its proposal, 

discussed above, reminding a financial 

advisor to an issuer and the DMM that 

any consultations with the financial 

advisor must be conducted in a manner 

consistent with the federal securities 

laws, including Regulation M and other 

anti-manipulation requirements.76 The 

Exchange also represents that it has 

retained FINRA to monitor such 

compliance and that it plans to issue 

regulatory guidance in this area. These 

steps will also help to ensure 

compliance by participants in the direct 

listing process with these important 

provisions of the federal securities laws 

and that the proposed changes are 

consistent with preventing manipulative 

acts and practices, and protecting 

investors and the public interest in 

accordance with Section 6(b)(5) of the 

Exchange Act. 

C. Lack of Traditional Underwriter 

Involvement in a Primary Direct Floor 

Listing and Securities Act Section 11(a) 

Standing 

1. Comments on the Proposal 

Several commenters expressed 

concerns that the lack of traditional 

underwriter involvement in direct 

listings generally would increase risks 

for investors, suggesting that direct 

listings circumvent the traditional due 

diligence process and traditional 

underwriter liability.77 One commenter 

stated that approval of the proposal 

would likely increase the number of 

companies that forgo the traditional IPO 

process, and significantly increase the 

risks for retail investors, including by 

circumventing the due diligence 

process.78 This commenter expressed 

concern that direct listings could 

weaken certain investor protections, and 

recommended that the Commission 

make clear that financial advisors, 

exchanges, control shareholders, and 

directors involved in a direct listing 

automatically incur statutory 

underwriter liability under the 

Securities Act and are required to hold 


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79See ASA Letter I, at 2; Letter from Christopher 

A. Iacovella, Chief Executive Officer, American 

Securities Association (Mar. 5, 2020) (‘‘ASA Letter 

II’’), at 2–3. Several additional commenters raised 

a variety of concerns with the use of a direct listing 

to conduct a primary offering. For example, one 

commenter expressed the view that ‘‘bailing out’’ 

private market investors with reduced offering 

requirements would incent companies to remain 

private longer, reduce transparency, and impair 

price discovery. See Letter from Anonymous (Dec. 

4, 2019). Another commenter took the position that 

direct listings are a method for insiders to ‘‘rip-off’’ 

IPO investors. See Letter from Allan Rosenbalm 

(Dec. 4, 2019). Another commenter was critical of 

direct listings for a variety of reasons, and 

expressed the view, among other things, that they 

are ‘‘an attempt to bypass the independent skilled 

investment banking and investment management 

professionals when establishing the initial market 

value of the company.’’ Letter from Anonymous 

(Jan. 3, 2020). Another commenter stated that a 

primary capital raise would have many red flags, 

questioned how to trust a private company’s 

accounting methods that are not consistent with the 

public markets, and stated that a direct listing is 

‘‘fraudulent with no liability.’’ See Letter from 

Anonymous (July 1, 2020). 

80Wedbush Letter. 

81See Letter from Jeffrey P. Mahoney, General 

Counsel, Council of Institutional Investors (Jan. 16, 

2020) (‘‘CII Letter I’’), at 2; Letter from Jeffrey P. 

Mahoney, General Counsel, Council of Institutional 

Investors (Apr. 16, 2020) (‘‘CII Letter II’’), at 2; CII 

Letter III, at 3–4, 6. 

82See CII Letter I, at 2–3; CII Letter II, at 3; 

Petition for Review, at 9–10. This commenter was 

particularly concerned about positions taken by the 

issuer in a recent lawsuit relating to the direct 

listing of Slack, and expressed the view that the 

issuer ‘‘relies on (1) attacking the right of secondary 

market purchasers to bring a Section 11 claim; and 

(2) the inability to determine what shares were 

‘covered’ by Slack’s registration statement.’’ CII 

Letter I, at 2. See also Pirani v. Slack Technologies, 

Inc., 445 F. Supp. 3d 367 (N.D. Cal. 2020). 

83See Petition for Review, at 9. 

84Although not required by federal securities 

laws or existing national securities exchange listing 

rules, a lockup period is an oft-included contractual 

agreement or provision negotiated with the 

underwriters of an initial public offering that 

restricts insiders and certain other pre-IPO security 

holders from selling, transferring, or otherwise 

disposing of their securities for a specified period— 

typically 90 to 180 days—following the initial 

public offering. As these provisions are not required 

by federal securities laws or existing national 

securities exchange listing rules, the specific terms 

of lockup agreements can and do vary between 

offerings. Rule 144 creates a safe harbor for the sale 

of restricted or control securities under the 

exemption in Section 4(a)(1) of the Securities Act 

if the seller complies with the conditions of the safe 

harbor, which includes a minimum holding period. 

See 17 CFR 230.144. 

85The Petitioner stated that tracing shares to a 

registration statement immediately after an IPO may 

not be a significant concern but the situation 

becomes murkier when insiders are able to sell their 

shares in the company after the end of the lockup 

period. See Petition for Review, at 8. In discussing 

traceability issues, the Petitioner also stated that 

NYSE’s proposal on Selling Shareholder Direct 

Floor Listings ‘‘permitted not only the sale of shares 

covered by the registration statement, but also the 

simultaneous sale of unregistered shares held by 

insiders, assuming that the owner of those shares 

could satisfy the requirements of the Rule 144 

exemption from registration.’’ See Petition for 

Review, at 9. 

86See id. at 14. The Petitioner stated with respect 

to the Slack case (see note 82, supra) that while the 

district court denied a motion to dismiss a Section 

11 claim on the grounds that the plaintiff could not 

trace their purchase to Slack’s registration 

statement, the court of appeals has agreed to hear 

the matter on an interlocutory basis so it is unclear 

whether the district court case will be upheld. See 

Pirani v. Slack Technologies, Inc., No. 20–16419 

(9th Cir. July 23, 2020), Docket No. 1. The Petitioner 

further argued that the Approval Order did not cite 

any cases where the sale of registered and 

unregistered shares shortly after an IPO and prior 

to the end of a lockup period was used as a basis 

to dismiss a claim of a Section 11 violation. See 

Petition for Review, at 14. 

87See Petition for Review, at 12; CII Letter I, at 

2–3; CII Letter III, at 4. 

88See Letter from Elizabeth K. King, Chief 

Regulatory Officer, ICE, General Counsel & 

Corporate Secretary, NYSE (Mar. 16, 2020) (‘‘NYSE 

Response Letter’’), at 2. 

89See NYSE Response Letter, at 2–3. 

90See NYSE Response Letter, at 2–3. The 

Exchange took the position that IPOs carry a certain 

amount of risk for investors, that an underwritten 

IPO does not insulate investors from that risk, and 

that there is no reason to believe that companies 

with direct listings will perform any better or worse 

than companies with underwritten IPOs. See id. at 

3. 

91See NYSE Response Letter, at 4. The Exchange 

also took the position that the absence of lockup 

agreements with pre-IPO shareholders in Primary 

Direct Floor Listings does not create short-term 

the regulatory capital necessary to act as 

a de facto underwriter.79 On the other 

hand, one commenter supported direct 

listings as a suitable option for certain 

issuers, and stated that ‘‘[d]ue diligence 

is already ably done by the legions of 

experienced accountants, lawyers, 

consultants, rating agencies, etc.’’ 80

Another commenter recommended 

that the Commission disapprove the 

proposal and expressed concern that 

shareholder legal rights under Section 

11 of the Securities Act may be 

particularly vulnerable in the case of 

direct listings, and that investors in 

direct listings may have fewer legal 

protections than investors in IPOs.81

The commenter stated that it could not 

support direct listings as an alternative 

to IPOs if public companies could limit 

their liability for damages caused by 

untrue statements of fact or material 

omissions of fact within registration 

statements associated with direct 

listings.82

The Petitioner’s Petition for Review 

stated that the delegated order raises 

important policy issues that should be 

decided after plenary consideration by 

the Commission. In particular, the 

Petitioner expanded on its prior 

comments relating to claims under 

Section 11 of the Securities Act, stating 

that the proposal compounds the 

problems shareholders face in tracing 

their share purchases to a registration 

statement. As discussed in greater detail 

below, Section 11(a) of the Securities 

Act allows purchasers to bring claims 

for damages based on materially false or 

misleading registration statements. 

Courts have held that plaintiffs lack 

standing to pursue such claims if they 

cannot trace their purchased shares back 

to the offering covered by the false or 

misleading registration statement. The 

Petitioner stated that the proposal 

exacerbates concerns regarding the 

availability of Section 11 protections 

because it would ‘‘make it possible for 

many more shares to be directly listed 

and sold without the protections offered 

by IPO regulations.’’ 83 The Petitioner 

acknowledged that traceability problems 

may occur because of successive 

offerings—where first there is an 

offering under a registration statement 

and then there are unregistered offerings 

by company insiders after the expiration 

of any applicable lockup or Rule 144 

holding periods.84 The Petitioner also 

stated that traceability challenges may 

also arise in the context of simultaneous 

registered and unregistered sales.85 The 

Petitioner also argued that the very 

purpose of the proposal is ‘‘to facilitate, 

if not encourage, a significant increase 

in the number of securities that can be 

sold to the public without Section 11 

protections’’ and that it is hard to 

understand how that result poses no 

heightened risk to investors.86 The 

Petitioner urged the Commission to 

explore a system of traceable shares 

before approving a direct listing 

regime.87

2. NYSE Response to Comments 

In response, the Exchange stated that 

it does not believe that the absence of 

underwriters creates a gap in the 

regulatory regime that governs offerings 

of securities to the public.88 According 

to the Exchange, while involvement of 

a traditional underwriter is often 

necessary to the success of an IPO or 

other public offering, underwriter 

participation in the public capitalraising process is not required by the 

Securities Act, and companies regularly 

access the public markets for capital 

raising and other purposes without 

using traditional underwriters.89 In the 

Exchange’s view, the due diligence 

process in Primary Direct Floor Listings 

is the responsibility of the gatekeepers 

who participate in the transaction, such 

as the company’s board of directors, its 

senior management, and its 

independent accountants.90 The 

Exchange further stated that a company 

pursuing a Primary Direct Floor Listing 

would go through the same process of 

publicly filing a registration statement 

as an underwritten offering, and if a 

company’s business model exhibits 

weaknesses, they will be exposed to the 

public prior to listing.91


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price instability, and that at most it shifts the timing 

of such instability from six months after the offering 

to closer to the time of listing. See id. See also 

NYSE Statement, at 20, stating that the same price 

volatility concerns that cause underwriters to 

request lockup agreements in a traditional IPO may 

apply to direct listings as well. 

92See NYSE Statement, at 15. 

93See NYSE Statement, at 18. The Exchange 

stated that tracing issues are very fact-dependent 

and turn on many factors so it is unclear whether 

Section 11 tracing difficulties will in fact occur. See 

NYSE Statement, at 17. 

94See NYSE Statement, at 18–19 (citing In re 

Century Aluminum Co. Sec. Litig., 729 F.3d 1104, 

1107–08 (9th Cir 2013); Krim v. pcOrder.com, Inc., 

402 F.3d 489, 496–98 (5th Cir. 2005)). 

95See NYSE Statement, at 20 (stating that in the 

recent Selling Shareholder Direct Floor Listing by 

Palantir, insider shareholders entered into lockup 

agreements with respect to certain shares). Further, 

the Exchange stated that even if lockup agreements 

did prove to be less common in direct listings, there 

is a market-based solution to this issue because 

shareholders will pay less for shares acquired with 

direct listings if they would face materially greater 

difficulty in pursuing Section 11 claims in 

connection with direct listings, and that in turn 

would incentivize issuers to structure their direct 

listings in a way that does not reduce the 

protections available under the federal securities 

laws. See id. at 21, n.67. 

96See NYSE Statement, at 21–22 (citing Pirani, 

445 F. Supp. 3d at 380–81; Case Management Order 

#5, In re Slack Techs. Inc. S’holder Litig., Master 

File No. 19CIV005370, 2020 WL 4919555, at *3–5 

(Cal. Super. Ct. Aug. 12, 2020)). 

97See NYSE Statement, at 22. 

98See NYSE Statement, at 22–24. 

99See, e.g., Item 508(c) of Regulation S–K 

(‘‘Outline briefly the plan of distribution of any 

securities to be registered that are to be offered 

otherwise than through underwriters.’’). 

100Section 2(a)(11) of the Securities Act defines 

‘‘underwriter’’ to mean ‘‘any person who has 

purchased from an issuer with a view to, or offers 

or sells for an issuer in connection with, the 

distribution of any security, or participates, or has 

a direct or indirect participation in the direct or 

indirect underwriting of any such undertaking.’’ 

101The Commission does not agree, as argued by 

one commenter, that financial advisors, exchanges, 

control shareholders, and directors involved in a 

direct listing will necessarily incur statutory 

underwriter liability under the Securities Act. See 

ASA Letter I, at 2; ASA Letter II, at 2–3. Whether 

or not any person would be considered a statutory 

underwriter would be evaluated based on the 

particular facts and circumstances, in light of the 

definition of underwriter contained in Section 

2(a)(11). 

102See note 79, supra. 

103See, e.g., Instruction 1 to Item 501(b)(3) of 

Regulation S–K. 

104See Rule 4–01(a) of Regulation S–X. 

In response to the Petitioner’s concern 

about the adequacy of investor 

protections under Section 11 of the 

Securities Act, the Exchange stated that 

these concerns flow from an extraneous 

factor—namely, lockup agreements. In 

particular, the Exchange contends that 

the Section 11 and traceability concerns 

are due to the potential lack of lockup 

agreements, which are neither 

prohibited nor required by the proposal 

or any other law or regulation, rather 

than to anything inherent in direct 

listings themselves or the Exchange 

rules permitting them to be listed.92 The 

Exchange argued that the Petitioner 

assumes that because Primary Direct 

Floor Listings do not require 

underwriters, they will never involve 

lockup agreements, and therefore 

insider shareholders will sell their 

unregistered shares alongside the 

issuer’s registered shares, potentially 

making it harder to trace purchased 

shares back to the registration 

statement.93 Further, according to the 

Exchange, the traceability requirement 

may make it difficult for shareholders to 

establish standing under Section 11 in 

many situations that do not involve 

direct listings, including when a 

company has issued securities under 

more than one registration statement 

and distributed those securities through 

traditional, firm commitment 

underwritings.94 The Exchange stated 

that in traditional, firm commitment 

underwritten IPOs there is no legal or 

regulatory requirement for the issuer to 

enter into lockup agreements with 

insiders, and conversely, there is 

nothing preventing an issuer in a direct 

listing from entering into a lockup 

agreement.95

According to the Exchange, the only 

courts to consider Section 11 standing 

in the context of a direct listing 

involved the Selling Shareholder Direct 

Floor Listing by Slack Technologies, 

Inc., where both a federal and a state 

court concluded that Section 11 did not 

preclude plaintiffs, at the pleading 

stage, from pursuing claims just because 

they could not definitively trace the 

securities they acquired to the 

registration statement.96 The Exchange 

stated that for Petitioner’s concerns to 

materialize, other courts in 

circumstances where there is no lockup 

agreement would need to reach the 

opposite conclusion.97 Moreover, in 

response to the Petitioner’s arguments 

that the Commission should delay 

implementation of the proposal until it 

addresses the traceability issue by 

enacting certain ‘‘proxy plumbing’’ 

reform measures, the Exchange stated 

that the Petitioner has pursued this goal 

for many years and the current proposal 

is not the proper vehicle to advance this 

agenda.98

3. Commission Discussion and Analysis 

The Commission agrees with the 

Exchange that the Securities Act does 

not require the involvement of an 

underwriter in registered offerings.99

Moreover, given the broad definition of 

‘‘underwriter’’ 100 in the Securities Act, 

a financial advisor to an issuer engaged 

in a Primary Direct Floor Listing may, 

depending on the facts and 

circumstances including the nature and 

extent of the financial advisor’s 

activities, be deemed a statutory 

‘‘underwriter’’ with respect to the 

securities offering, with attendant 

underwriter liabilities.101 Thus, the 

financial advisors to issuers in Primary 

Direct Floor Listings have incentives to 

engage in robust due diligence, given 

their reputational interests and potential 

liability, including as statutory 

underwriters under the broad definition 

of that term. Moreover, even absent the 

involvement of a statutory underwriter, 

investors would not be precluded from 

pursuing any claims they may have 

under the Securities Act for false or 

misleading offering documents, nor 

would the absence of a statutory 

underwriter affect the amount of 

damages investors may be entitled to 

recover. 

In addition, issuers, officers, directors, 

and accountants, with their attendant 

liability, play important roles in 

assuring that disclosures provided to 

investors are materially accurate and 

complete. The Commission therefore 

does not view a firm commitment 

underwriting as necessary to provide 

adequate investor protection in the 

context of a registered offering. Indeed, 

exchange-listed companies often engage 

in offerings that do not involve a firm 

commitment underwriting. 

The Commission finds that the 

proposed rule change is consistent with 

the protection of investors. First, the 

Commission disagrees with the 

concerns raised by commenters that 

direct listings would ‘‘rip off’’ investors, 

reduce transparency, or involve reduced 

offering requirements or accounting 

methods that are not ‘‘up to code with 

the public markets.’’ 102 The proposed 

rule change will require all Primary 

Direct Floor Listings to be registered 

under the Securities Act, and thus 

subject to the existing liability and 

disclosure framework under the 

Securities Act for registered offerings. 

Among other disclosures, these 

registration statements will require both 

bona fide price ranges 103 and audited 

financial statements prepared in 

accordance with either U.S. GAAP or 

International Financial Reporting 

Standards as issued by the International 

Accounting Standards Board.104

Second, Petitioner’s concerns 

regarding shareholders’ ability to pursue 

claims pursuant to Section 11 of the 

Securities Act due to traceability issues 

are not exclusive to nor necessarily 

inherent in Primary Direct Floor 

Listings. Rather, this issue is potentially 

implicated anytime securities that are 

not the subject of a recently effective 


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85816 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 

105Section 11(a) of the Securities Act. 

106See, e.g., In re Century Aluminum Co. Sec. 

Litig., 729 F.3d 1104 (9th Cir. 2013). 

107See, e.g., Pirani v. Slack Techs., Inc., 2020 U.S. 

Dist. LEXIS 70177 (N.D. Cal., April 21, 2020) 

(addressing Securities Act Section 11 standing and 

stating that ‘‘[i]f the text is ambiguous, the Court 

‘may [also] use canons of construction, legislative 

history, and the statute’s overall purpose to 

illuminate Congress’s intent.’ ’’ (quoting Pac. Coast 

Fed’n of Fishermen’s Ass’ns v. Glaser, 945 F.3d 

1076 (9th Cir. 2019)). 

108See, e.g., Barnes v. Osofsky, 373 F.2d 269 (2d 

Cir. 1967); Krim v. PCOrder.com, 402 F.3d 489 (5th 

Cir. 2005) (IPO stock represented 91% of shares 

trading in market); In re Century Aluminum Co. 

Sec. Litig., 729 F.3d 1104 (9th Cir. 2013) (49 million 

shares were already trading in market prior to the 

issuance of 24.5 million shares pursuant to 

allegedly misleading registration statement). 

109Rule 144 is a non-exclusive safe harbor that 

permits the resale of restricted securities, without 

Securities Act registration, if a number of 

conditions are met, including a holding period of 

either six months or one year, depending on the 

reporting status of the issuer. Non-affiliates of a 

newly-listed issuer may rely on Rule 144 to sell 

their securities provided they have held the 

securities for at least one year. 

110While lockup agreements are customary in 

firm commitment initial public offerings, in the 

Commission’s experience they often do not cover 

all of the outstanding shares. There is thus a risk 

that, even in the context of IPOs underwritten on 

a firm commitment basis, securities other than 

those issued pursuant to the related registration 

statement may enter the trading market prior to the 

expiration of any applicable lockup period and thus 

could raise questions regarding traceability of 

shares purchased on a national securities exchange. 

Additionally, as the Exchange noted, companies 

that pursue a direct listing may also enter into 

lockup agreements. Required disclosure in 

registration statements, for both direct listings and 

IPOs, may help investors assess the risk that shares 

other than those offered pursuant to the registration 

statement will be available for sale. For example, in 

registration statements for IPOs and direct listings, 

issuers are required to provide disclosure of the 

amount of shares that may be sold pursuant to Rule 

144. See Item 201(a)(2) of Regulation S–K. Issuers 

also typically provide disclosure of the material 

terms of lockup agreements governing pre-IPO 

shares. 

111See, e.g., Krim v. PCOrder.com, 402 F.3d 489 

(5th Cir. 2005). 

112For example, the Ninth Circuit Court of 

Appeals has agreed to consider the issue of Section 

11 standing at issue in Pirani v. Slack Techs., Inc., 

2020 U.S. Dist. LEXIS 70177 (N.D. Cal., April 21, 

2020) on an interlocutory basis. See Pirani v. Slack 

Technologies, Inc., No. 20–16419 (9th Cir., July 23, 

2020), Docket No. 1. 

113A frequent academic observation of traditional 

firm commitment underwritten offerings is that the 

IPO price, established through negotiation between 

the underwriters and the issuer, is often lower than 

the price that the issuer could have obtained for the 

securities, based on a comparison of the IPO price 

to the closing price on the first day of trading. See, 

e.g., Patrick M. Corrigan, Article: The Seller’s Curse 

and the Underwriter’s Pricing Pivot: A Behavioral 

Theory of IPO Pricing, 13 Va. L. & Bus. Rev 335; 

Jay R. Ritter, Initial Public Offerings: Underpricing 

tbl.1a (June 17, 2020), https://site.warrington.

ufl.edu/ritter/files/IPOs2019_Underpricing.pdf. 

registration statement trade in the same 

market as those that are so subject. 

Where a registration statement, at the 

time of effectiveness, contains an untrue 

statement of a material fact or omits to 

state a material fact required to be stated 

therein or necessary to make the 

statements therein not misleading, 

Section 11(a) of the Securities Act 

provides a cause of action to ‘‘any 

person acquiring such security,’’ unless 

it is proved that at the time of the 

acquisition the person ‘‘knew of such 

untruth or omission.’’ 105 Courts have 

interpreted this statutory provision to 

permit aftermarket purchasers (i.e., 

those who acquire their securities in 

secondary market transactions rather 

than in the initial distribution from the 

issuer or underwriter) to recover 

damages under Section 11, but only if 

they can trace the acquired shares back 

to the offering covered by the false or 

misleading registration statement.106

Tracing is not set forth in Section 11 

and is a judicially-developed doctrine. 

As such, the application of this doctrine 

and, in particular, the pleading 

standards and factual proof that 

potential claimants must satisfy vary 

depending on the particular facts of the 

distribution and judicial district.107

Aftermarket purchasers following 

either firm commitment underwritten 

IPOs or direct listings may face similar 

difficulties in tracing their shares back 

to a misleading registration statement. 

In a number of litigated cases outside of 

the direct listing context, courts have 

denied plaintiffs standing to sue under 

Section 11 following registered public 

offerings on the basis that plaintiffs 

purchased their securities in secondary 

market transactions and could not 

directly trace their purchases to the 

allegedly defective registered offering 

because some portion 108 of the 

outstanding securities available for 

trading—sometimes a very small 

portion—were not issued pursuant to 

the allegedly defective registration 

statement. These situations arise where 

shares may have been issued pursuant 

to more than one registration statement, 

not all of which include material 

misstatements or omissions. Shares may 

have also entered the market prior to a 

potential claimant’s purchase other than 

through the registered offering, such as 

through sales pursuant to Rule 144.109

For example, the shares might have 

been sold by insiders or significant 

shareholders following the expiration of 

lockup agreements or applicable 

restricted periods, or could have also 

been sold by other shareholders who 

were never subject to any such 

agreement.110 Furthermore, traceability 

concerns can arise when shares are held 

in fungible bulk—as they usually are— 

such that an investor is not able to 

establish that the particular shares it 

purchased were acquired pursuant to, or 

are traceable to, a particular misleading 

registration statement.111

Although it is possible that 

aftermarket purchases following a 

Primary Direct Floor Listing may 

present tracing challenges, this investor 

protection concern is not unique to 

Primary Direct Floor Listings, nor (based 

on the approaches taken by courts as 

described above) do we expect any such 

tracing challenges in this context to be 

of such magnitude as to render the 

proposal inconsistent with the Act. We 

expect judicial precedent on traceability 

in the direct listing context to continue 

to evolve,112 but the Commission is not 

aware of, nor have commenters pointed 

to, any precedent to date in the direct 

listing context which prohibits plaintiffs 

from pursuing Section 11 claims. 

The Commission further believes that 

Primary Direct Floor Listings will 

provide benefits to existing and 

potential investors relative to firm 

commitment underwritten offerings. 

First, because the securities to be issued 

by the company in connection with a 

Primary Direct Floor Listing would be 

allocated based on matching buy and 

sell orders, in accordance with the 

proposed rules, some investors may be 

able to purchase securities in a Primary 

Direct Floor Listing who might not 

otherwise receive an initial allocation in 

a firm commitment underwritten 

offering. The proposed rule change 

therefore has the potential to broaden 

the scope of investors that are able to 

purchase securities in an initial public 

offering, at the initial public offering 

price, rather than in aftermarket trading. 

Second, because the price of 

securities issued by the company in a 

Primary Direct Floor Listing will be 

determined based on market interest 

and the matching of buy and sell orders, 

Primary Direct Floor Listings will 

provide an alternative way to price 

securities offerings that may better 

reflect prices in the aftermarket, and 

thus may allow for efficiencies in IPO 

pricing and allocation.113 In a firm 

commitment underwritten offering, the 

offering price is informed by 

underwriter engagement with potential 

investors to gauge interest in the 

offering, but ultimately decided through 

negotiations between the issuer and the 

underwriters for the offering. The 

underwriters then sell the securities to 

the initial purchasers at the public 

offering price. When the securities begin 

trading on the listing exchange, 

however, the price often varies from the 

IPO price. The opening auction in a 

Primary Direct Floor Listing provides 


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114While the Commission acknowledges the 

possibility that some companies may pursue a 

Primary Direct Floor Listing instead of a traditional 

IPO, these two listing methods may not be 

substitutable in a wide variety of instances. For 

example, some issuers may require the assistance of 

underwriters to develop a broad investor base 

sufficient to support a liquid trading market; others 

may believe a traditional firm commitment IPO is 

preferable given the benefits to brand recognition 

that can result from roadshows and other marketing 

efforts that often accompany such offerings. Thus, 

we do not anticipate that all companies that are 

eligible to go public through a Primary Direct Floor 

Listing will choose to do so; the method chosen will 

depend on each issuer’s unique characteristics. 

115See 15 U.S.C. 78f(b)(5). See also 15 U.S.C. 

78k–1(a)(1)(C)(i). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3For ERC hearings under Exchange Rule General 

3, Section 2(g), this temporary authority is granted 

to the ERC or relevant Subcommittee. 

4 If the Exchange requires temporary relief from 

the rule requirements identified in this proposal 

beyond April 30, 2021, the Exchange may submit 

a separate rule filing to extend the expiration date 

of the temporary amendments under these rules. 

The amended Exchange rules will revert back to 

their original state at the conclusion of the 

temporary relief period and any extension thereof. 

5See Exchange Act Release No. 89737 (September 

2, 2020), 85 FR 55712 (September 9, 2020) (SR– 

FINRA–2020–027) (‘‘FINRA Filing’’). See also 

Exchange Act Release No. 90619 (December 9, 

2020), 85 FR 81250 (December 15, 2020) (SR– 

FINRA–2020–042) (extending the relief in the 

FINRA Filing through April 30, 2021). The 

Exchange notes that the FINRA Filing also proposed 

to temporarily amend FINRA Rules 9261, 9524, and 

9830, which govern hearings in connection with 

appeals of disciplinary actions, eligibility 

proceedings, and temporary and permanent cease 

and desist orders. The Exchange’s Rules 9261, 9524, 

and 9830 incorporate by reference The Nasdaq 

Stock Market LLC rules, which are the subject of a 

separate filing. See SR–NASDAQ–2020–076 

(November 5, 2020). Therefore, the Exchange is not 

proposing to adopt that aspect of the FINRA Filing. 

for a different price discovery method 

for IPOs which may reduce the spread 

between the IPO price and subsequent 

market trades, a potential benefit to 

existing and potential investors. In this 

way, the proposed rule change may 

result in additional investment 

opportunities while providing 

companies more options for becoming 

publicly traded.114

The Commission finds that the 

Exchange’s proposal will facilitate the 

orderly distribution and trading of 

shares, as well as foster competition, 

which is clearly consistent with the 

purposes of the Exchange Act. The 

orderly distribution of, and trading of 

shares, promotes fair and orderly 

markets, and is one of the important 

roles of a national securities exchange in 

ensuring that its rules prevent 

fraudulent and manipulative acts and 

practices, promote just and equitable 

principles of trade and protect investors 

and the public interest.115 The proposal 

also fosters competition by providing an 

alternate method for companies of 

sufficient size that decide they would 

rather not conduct a firm commitment 

underwritten offering to list on the 

Exchange, thereby removing potential 

impediments to free and open markets 

consistent with Section 6(b)(5) of the 

Exchange Act while also supporting 

capital formation. For the reasons 

discussed above, the Commission finds 

that, on balance, the proposed rule 

change to permit Primary Direct Floor 

Listings is designed to, among other 

things, prevent fraudulent and 

manipulative acts and practices and to 

protect investors and the public interest. 

IV. Conclusion 

For foregoing reasons, the 

Commission finds that the proposed 

rule change, as modified by Amendment 

No. 2, is consistent with the Exchange 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange. 

It is therefore ordered, pursuant to 

Rule 431 of the Commission’s Rules of 

Practice, that the earlier action taken by 

delegated authority, Exchange Act 

Release No. 89684 (August 26, 2020), 85 

FR 54454 (September 1, 2020), is set 

aside and, pursuant to Section 19(b)(2) 

of the Exchange Act, the proposed rule 

change (SR–NYSE–2019–67), as 

modified by Amendment No. 2, hereby 

is approved. 

By the Commission. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2020–28709 Filed 12–28–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90756; File No. SR–ISE– 

2020–42] 

Self-Regulatory Organizations; Nasdaq 

ISE, LLC; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Harmonize Exchange 

Rule General 3, Section 2 With Recent 

Changes by the Financial Industry 

Regulatory Authority, Inc. 

December 21, 2020. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (‘‘Act’’ 

or ‘‘Exchange Act’’),1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on December 11, 2020, Nasdaq ISE, LLC 

(‘‘ISE’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

II below, which Items have been 

prepared substantially by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to harmonize 

Exchange Rule General 3, Section 2 with 

recent changes by the Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’). 

This amendment would temporarily 

grant the Exchange Review Council 

(‘‘ERC’’) authority 3 to conduct hearings 

in connection with appeals of 

Membership Application Program 

decisions by video conference, if 

warranted by the current COVID–19- 

related public health risks posed by an 

in-person hearing. As proposed, the 

temporary amendment would be in 

effect through April 30, 2021.4

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/ise/rules, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to harmonize 

Exchange Rule General 3, Section 2 with 

recent changes to FINRA Rule 1015 in 

order to temporarily grant the ERC 

authority to conduct hearings in 

connection with appeals of Membership 

Application Program decisions by video 

conference, if warranted by the current 

COVID–19-related public health risks 

posed by an in-person hearing.5 As 

proposed, these temporary amendments 

would be in effect through April 30, 

2021. 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES