Companies seeking to hold initial public offerings (IPOs) on the New York Stock Exchange (NYSE) no longer will be required to let investment banks buy and sell the first shares to hit the market, the Financial Times (FT) reported.
The addition of a lower-cost, underwriter-free IPO option was formally approved by the U.S. Securities and Exchange Commission (SEC) Tuesday (Dec. 22), FT reported.
The Council of Institutional Investors asked the SEC to re-consider in September, according to FT. The group’s stated reasons for opposing the change included that stock purchasers who concluded they were misled in a registration statement — the formal document accompanying the issuance of shares — could have a hard time suing the issuing company if they couldn’t trace their purchases to shares offered as part of the first block to hit the market.
In the ruling, the SEC wrote that forces other than the involvement of investment bankers are sufficient to protect investors buying shares issued in IPOs, according to FT.
The Council of Institutional Investors stated following Tuesday’s announcement that it is “dismayed” by the SEC’s decision. A post on the group’s website said the ruling “failed to fully consider investor concerns about liability and corporate governance that the expansion of direct listings will exacerbate.”
Commissioner Elad L. Roisman said in a statement released by the SEC Tuesday: “While many aspects of our equity markets have long benefited from innovation, innovation has managed to elude, to any significant extent, the primary offering process. Until today. NYSE’s proposal would provide an alternative means for companies listed on their exchange to raise equity capital in our public markets. I support the approval of the exchange’s proposed rule change.”
The change comes at the end of a record-busy IPO year — and one with heightened attention to initial stock offerings that were conducted without traditional underwriters. BeiGene and Carvana were among companies that went public without the conventional underwriter involvement.