On December 3, 2019, the Securities and Exchange Commission (SEC) approved Nasdaq's recently amended proposal to allow direct listings on The Nasdaq Global Market and The Nasdaq Capital Market. Prior to this rule change, direct listings were permitted solely on the Nasdaq's most exclusive market, The Nasdaq Global Select Market, as well as the New York Stock Exchange.
Background
In February 2019, the SEC approved Nasdaq's proposed rule changes for direct listings on The Nasdaq Global Select Market, which rule changes included, among other things, 1) clarifying the role of a broker-dealer serving as a financial advisor in a direct listing, 2) setting forth how Nasdaq will calculate the price-based initial listing requirements for direct listings, and 3) requiring that a company that lists through a direct listing do so at the time of effectiveness of a registration statement filed under the Securities Act of 1933 solely for the purpose of allowing existing shareholders to sell their shares.
In August 2019, Nasdaq submitted an initial proposal to the SEC to extend the foregoing rules to direct listings on The Nasdaq Global Market and The Nasdaq Capital Market. Following an extension of the review period in October and Nasdaq's submission of the amended proposal on November 26, the SEC approved the proposed rules, as amended.
Summary of Final Rules
While the final approved rules relating to direct listings on The Nasdaq Global Market and The Nasdaq Capital Market are generally similar to the rules relating to direct listings on The Nasdaq Global Select Market, there are some differences. A summary of these differences follows, including, where applicable, clarifications or revisions from the initial proposed rules discussed in our prior Alert.
What to Do Now?
For those companies unable to qualify for listing on The Nasdaq Global Select Market due to its higher quantitative listing requirements, direct listings may now be a viable option on either The Nasdaq Global Market or The Nasdaq Capital Market. At this time, direct listings remain limited to resales of shares held by existing stockholders, and thus have limited appeal to companies needing additional capital. We continue to monitor developments in this area.
For more information about direct listings or any related matter, please contact any member of Wilson Sonsini's capital markets practice.