Tuesday, February 06, 2018

SEC okays NYSE rule change to allow companies to list without completing an IPO

By John Filar Atwood

The SEC has approved the NYSE’s proposed change to its listing rules that will allow companies that have not completed an underwritten IPO to be traded on the exchange. Listing will be at the NYSE’s discretion, and will be subject to the company providing evidence that the value of its publicly held shares is at least $250 million.

Prior to the rule change, the NYSE generally expected companies to list in connection with a firm commitment underwritten IPO, upon transfer from another market, or pursuant to a spin-off. However, the rules did acknowledge that companies that have not previously had their common shares registered under the Exchange Act, but which have sold them in a private placement, may wish to list their shares on the NYSE at the time of effectiveness of a registration statement covering a resale of the shares. Under the rule change, the NYSE will now have the discretion to list companies under these circumstances.

Valuation requirements. The NYSE requires companies that list on the exchange to have publicly-held shares valued at either $40 million or $100 million, depending on the type of listing. Companies wanting to take advantage of the new rules also will have to meet specified valuation requirements.

In the absence of any recent trading in a private placement market, the NYSE will determine that a company has met its market value of publicly-held shares requirement if the company provides a recent valuation evidencing a market value of publicly-held shares of at least $250 million. The rule change accommodates companies that are large enough to be suitable for listing on the exchange, but either do not have their securities traded on a private placement market or have a limited private placement market that does not provide a reasonable basis for reaching a valuation.

The SEC agreed with the NYSE’s conclusion that adopting a valuation requirement that is at least two-and-a-half times the existing $100 million requirement will provide a degree of comfort that the market value of the company’s shares will meet the NYSE’s standards. The SEC noted that the valuation must be provided by an entity that has significant experience in providing such valuations.

Independence of valuation agent. The rule change establishes certain criteria that precludes a valuation agent from being considered “independent.” An agent will not be deemed to be independent if: (1) at the time it provides the valuation, the valuation agent or any affiliated person beneficially owns more than 5 percent of the class of securities to be listed, including any right to receive any such securities exercisable within 60 days; (2) the valuation agent or any affiliated entity has provided any investment banking services to the listing applicant within the 12 months preceding the date of the valuation; or (3) the valuation agent or any affiliated entity has been engaged to provide investment banking services to the listing applicant in connection with the proposed listing or any related financings or other related transactions.

The rule change also addresses how a designated market maker should establish the reference price in connection with the opening on the first day of a trading of the shares of a company taking advantage of the rule change. If the shares have a sustained trading history on a private placement market, the price will be the most recent transaction in that market. If not, the designated market maker will have to consult with a financial adviser to the issuer.

Regulatory halt. Finally, the rule change permits the NYSE to declare a regulatory halt in certain securities that are the subject of an initial pricing on the exchange and have not been listed on an exchange or quoted in an over-the-counter quotation medium immediately prior thereto. The regulatory halt is for the limited purpose of precluding other markets from trading a security until the NYSE has completed the initial pricing process. The SEC believes this proposed change will facilitate the initial opening by the designated market maker of certain securities not listed in connection with an underwritten IPO, and thereby promote fair and orderly markets and the protection of investors.