Introduction:

The direct listing process is an alternative to the traditional initial public offering (IPO) for companies looking to go public. Through direct listing, a company does not issue new shares but instead registers existing shares for sale in the public market. This method allows early investors and insiders to sell their shares without the company having to raise new capital. In this blog, we’ll explore the direct listing process, its benefits, and the key differences between listing on OTC Markets, NASDAQ, and NYSE.

Understanding Direct Listing:

In a direct listing, a company first completes one or more private offerings of its securities to raise capital upfront. Then, it files a registration statement with the Securities and Exchange Commission (SEC) to register the shares purchased by private investors for public resale. Unlike an IPO, there is no underwriter involved, and the company avoids some of the traditional costs and lockup restrictions that come with an IPO.

Benefits of Direct Listing:

• Early Access to Funds: Since companies raise funds through private offerings before going public, they receive money earlier in the process.
• Lower Costs: A direct listing eliminates the need for underwriters, which reduces overall expenses such as underwriting fees. However, private placement agents might charge higher commissions due to the increased risk faced by investors in private offerings.
• No Lockup Period: Early investors and insiders can sell their shares immediately upon listing, without waiting for a traditional IPO lockup period to expire.

Direct Listing on OTC Markets vs. NASDAQ and NYSE:

While the basic principles of a direct listing apply across different markets, there are several key differences between OTC Markets and exchanges like NASDAQ or NYSE:

• OTC Markets Listing Process: In an OTC direct listing, a company works with a market maker to file a Form 15c2-11 with FINRA to obtain a trading symbol. The registered securities can only be sold by shareholders at the registered price until a market price is established. After listing on OTCQB or OTCQX, companies can amend the registration statement to allow sales at market prices.
• NASDAQ Direct Listing: The company files an S-1 registration statement and a simple Form 8-A to register under the Securities Exchange Act of 1934. NASDAQ issues a trading symbol once the registration is effective, and shares can be sold at market prices. There is no need for a market maker like in OTC Markets listings.
• NYSE Direct Listing: Similar to NASDAQ, but the NYSE rules allow the exchange to determine the company's market value without needing an underwriter. NYSE ensures that the company meets its market value requirement through an independent third-party valuation.

Conclusion:

Direct listings offer a streamlined and cost-effective alternative to the traditional IPO process, allowing companies to access the public markets without issuing new shares. By understanding the differences between OTC Markets, NASDAQ, and NYSE, companies can choose the best listing option based on their capital structure and public market strategy.