The market for initial public offerings is surging again, but so is the appetite for its disruption. On Monday, the New York Stock Exchange proposed amending its rules to make direct listings—an alternative to the IPO that has gained some support over the last couple of years—a lot more attractive for startups.
Until now, companies that have gone public via direct listings have been able to sell existing shares directly to investors, but not issue new shares in the process. This is how both music-streaming service Spotify and workplace messaging tool Slack, pioneers of the direct listing, went public on the NYSE. The change in rules, though, would enable companies that pursue a direct listing to issue new shares while going public, meaning they would be able to raise new capital. That is, of course, if the Securities and Exchange Commission approves the amendment. (So far, the SEC has declined to allow companies to raise capital via a direct listing.)
The NYSE has an obvious interest in urging more companies to go public, whatever route they pursue. While IPOs are up, relative to the stall in activity in the first few months of this year, the general trend over the last few years is that more and more startups are opting to wait longer before going public. Plenty of founders and venture capitalists are bullish on direct listings, seeing it as a way of providing a cheaper and more efficient way to enter the public markets. But they are also hoping that the traditional IPO path could ultimately be disrupted too. This may happen, especially in light of the changes that the COVID-19 outbreak has forced upon the industry. One small example: The time-consuming (not to mention pricey) so-called IPO roadshow has gone virtual because of the pandemic.
Which changes stick and which don’t remains to be seen. Fortune recently caught up with John Tuttle, vice chairman and chief commercial officer of the NYSE, for a wide-ranging conversation about some of the ways that recent events, including the pandemic, are already impacting how the exchange operates. Here is an excerpt of the interview. (A note: The interview was conducted before Monday’s amended SEC filing that aims to enable companies to execute direct listings with a capital raise.)
Fortune: You recently reopened the trading floor. How is it running today?
Tuttle: The floor is great, and the NYSE is doing great as well. After a roughly two-month-long temporary shift to electronic trading, we made the decision to have a thoughtful approach to reopening. We’ve engaged several public health experts, and felt it was time to reopen the trading floor. We reopened the trading floor to about 25% capacity. In phase one, we focused first on allowing floor brokers back in. For people like the designated market makers, who help with direct listing, they can do a lot of their functionalities remotely.
No more handshakes allowed on the floor, though, right?
We follow the rules. We have PPE [personal protective equipment]. We do screening and a questionnaire when folks come in.
It’s a bad time to do a lot of things right now, given the job market and other metrics. Is it a good time to go public?
The capital markets throughout this pandemic have remained open. This has provided capital to companies. That’s like oxygen to companies. We’ve kept our market open, and we first saw some secondary offerings [an issuing of shares by a company that has already made an initial public offering]—either defensively or opportunistically. Then we saw IPOs coming back to market, including some healthcare companies, which makes sense. Now we’re seeing tech with more predictable [enterprise sales] business models that are easy to understand. There’s less risk of customer attrition and more resiliency in a downturn with these.
Lots of companies are taking a stand against racism. How do you see your role in improving economic racial disparities?
We obviously don’t tolerate racism or any discrimination. And we recognize that we have a very visible platform—NYSE companies employ 43 million people. Diversity has been a focus of ours for a long time. We launched a board advisory council, a group made of CEOs from across geographies and industries, to increase diversity across corporate America. [The council, which connects companies with diverse board candidates, was announced in June 2019.] We’ve created an entire database that we’re making available to our listed companies. And now we are opening it up to private companies who are interested in finding independent directors.
How does the move to remote work impact innovation and startups being founded going forward? And how does that, in turn, impact the NYSE?
For thousands of years, people have thrived by coming together to share ideas. To really grow and innovate it requires people to come together. The new normal may require more remote work, but it’s human nature to come together.
We were hearing so much about direct listings before the crisis. What happens next?
We remain committed to providing new and innovative pathways to access the capital markets, including direct listings.
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