In an ongoing effort to improve access to capital markets, NASDAQ recently filed the second amendment to its proposed primary direct listing rule. If approved, the new rule could create a more viable route to the public markets for companies, especially as the SEC proposes heavier regulation of SPACs and the costs associated with traditional IPOs remain significant.

Historically, direct listings have been used by companies to increase liquidity for their stockholders rather than raise capital. Spotify’s direct listing in 2018 is a prime example. In December 2020, the SEC approved NYSE’s proposed rule allowing a direct listing with a capital raise, or primary direct listing (PDL), which permitted a company to sell its own shares in the opening auction as a means of raising capital. The SEC approved NASDAQ’s similar rule in May 2021. These rules allow companies to enter the public market without bearing the cost of a traditional IPO and, unlike prior direct listings, allow companies to raise capital. However, since the rules’ passage, no issuer has completed a PDL. NASDAQ believes that this may be because of companies’ concerns regarding the pricing range limitation (PRL), a range found in an issuer’s effective registration statement that provides a floor and ceiling price that the issuer’s stock may trade at on opening day. If the stock price falls outside the PRL, the offering may be cancelled or postponed until the issuer can amend its registration statement. A postponed PDL would likely create negative publicity for the company and affect any subsequent offering.