Direct listings have become an increasingly popular path for companies seeking to go public without a traditional IPO. A direct listing allows a company’s shares to be sold on a public exchange, providing existing shareholders liquidity without the use of underwriters to price and stabilize the stock.

In a direct listing, a company typically conducts one or more private offerings before filing a resale registration statement with the SEC, allowing private shareholders to sell their shares in the public market. Unlike an IPO, a direct listing does not raise new capital; rather, it registers shares already held by shareholders for public trading. This approach can provide benefits like lower costs, as companies are not paying for underwriter fees associated with IPOs, and allows for direct access to the public market without diluting ownership.

Key Differences for Direct Listings on Exchanges vs. OTC Markets

For listings on exchanges such as NASDAQ or NYSE, the exchange assigns a trading symbol, and shares are available to sell at market prices immediately after the SEC declares the registration statement effective. On the OTC Markets, a company must work with a market maker to file a Form 211 with FINRA to obtain a trading symbol, and shares are initially sold at the registered price rather than at prevailing market rates. After achieving OTCQB or OTCQX status, companies may amend their registration to allow sales at market price.

The Direct Listing Process

For both OTC Markets and exchanges, companies often engage legal, accounting, and financial advisors to guide them through due diligence, compliance with federal and state securities laws, and necessary corporate restructuring. Preparation may include ensuring proper governance, employee stock plans, and any necessary corporate cleanup. Once these elements are in place, a company files an S-1 registration statement with the SEC, listing all shares available for resale.

For exchange listings, a Form 8-A is typically filed alongside the S-1 to satisfy Exchange Act registration requirements, which is essential for companies aiming for NYSE or NASDAQ listings. This step is not required for OTC Markets listings. Companies also need to establish DTC eligibility to facilitate electronic trading.

Direct Listings: NASDAQ vs. NYSE

Both NASDAQ and NYSE have unique requirements and benefits for direct listings. NASDAQ allows a trading symbol immediately upon the registration statement's effectiveness, and the shares trade at prevailing market prices. NYSE also permits direct listings and has amended rules to allow an independent valuation to satisfy listing requirements.

Direct listings present a unique pathway to public markets that, while faster and potentially less costly than an IPO, require thorough planning and compliance with securities laws and exchange rules.