On December 2, 2022, Nasdaq received approval from the Securities and Exchange Commission (“SEC”) to modify certain pricing limitations for companies undertaking a direct listing involving sales of the company shares in the opening auction on the first day of trading on Nasdaq.
Prior to the rule change, in order for a company to sell shares concurrent with a direct listing, the actual price must have been set at or above the lowest price and at or below the highest price of the price range established by the company in its effective registration statement. This provided less flexibility than a company has in a traditional IPO.
The rule change modifies this pricing limitation in order to provide that Nasdaq would release the security for trading if (i) the actual price is set at or above the price that is 20% below the lowest price of the disclosed price range or (ii) the actual price is set at or below the price that is 80% above the highest price of the disclosed price range. In order to rely on the extended pricing flexibility, the company is required to publicly disclose and certify to Nasdaq that the company does not expect such price would materially change the company’s previous disclosure in its effective registration statement and that its effective registration statement contains a sensitivity analysis explaining how the company’s plans would change if the actual proceeds from the offering are less than or exceed those which would be generated if the offering were to proceed at a price within the disclosed price range. Nasdaq will calculate the 20% threshold below the disclosed price range and the 80% upside limit based on the high end of the price range in the registration statement at the time of effectiveness.
As part of the rule change, Nasdaq will require that the company listing securities in connection with a direct listing with a capital raise retain an underwriter with respect to the primary sales of shares by the company and identify the underwriter in its effective registration statement. The requirement to include an underwriter likely mitigated the SEC’s concerns relating to traceability and the perceived lack of a “gatekeeper” which often arise in connection with a direct listing with a capital raise.
The New York Stock Exchange has filed a similar rule change proposal with the SEC.
The SEC’s approval can be found here: Notice of Filing of Amendment No. 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 3, to Modify Certain Pricing Limitations for Companies Listing in Connection with a Direct Listing with a Capital Raise