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SEC Stalls Direct Listing Push to Protect Small Investors

In his campaign to rewrite the rules on how companies go public, Benchmark partner Bill Gurley has railed about how investment bankers handling traditional IPOs sell shares at too low a price. But the Securities and Exchange Commission, the ultimate arbiter of how the stock market works, is worried about how proposed rule changes could hurt small investors.

That concern is what drove the SEC’s decision last week to reject a New York Stock Exchange proposal that would have allowed a much bigger group of companies to avoid the traditional IPO process. The NYSE proposed allowing companies to go public via a direct listing—as Slack and Spotify have done—but with the added benefit of selling new shares simultaneously to raise capital. Such a “hybrid” listing, as investment bankers have dubbed the approach, may still be allowed by the SEC, which is conducting a broader review of changing rules for how companies go public. But it could take a year or longer for the SEC to conclude that review, say people familiar with the regulator’s thinking. Meanwhile, the NYSE on Wednesday resubmitted its proposal to the SEC, with some changes.