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SEC Rule Change On Direct Listings 'Unquestionably' Spells The End-Game For Traditional IPOs, Says Bill Gurley

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SEC Rule Change On Direct Listings 'Unquestionably' Spells The End-Game For Traditional IPOs, Says Bill Gurley

Silicon Valley investor Bill Gurley told CNBC Tuesday that the change in direct listings approved by the United States Securities and Exchange Commission on Tuesday will "unquestionably" lead to the demise of traditional initial public offerings.

What Happened: Appearing on CNBC’s “Closing Bell” program, the general partner at Benchmark hailed the SEC move on direct listings and said it was a dawn of a superior alternative to the traditional IPOs, which he termed “archaic.”

The investor said the legacy IPO process has “resulted in massive one-day wealth transfers straight from founders, employees and investors to the buy side.”

Gurley, who led investments in Uber Technologies Inc (NYSE: UBER), and Zillow Group Inc (NASDAQ: ZG), has expressed criticism of traditional IPOs.

“In the future you’ll be able to go on Robinhood and if you want to participate in an IPO, you can,” said Gurley. “Let’s not let these intermediaries and gatekeepers hand allocate who gets this underpriced stock.”

Why It Matters: Gurley said that the IPO process has deteriorated in the last five years instead of improving. The investor singled out DoorDash Inc (NYSE: DASH) and Airbnb Inc (NASDAQ: ABNB), which have surged 86% and 112% respectively post their offerings calling the rise “outlandish,” CNBC reported separately. 

On Tuesday, the SEC approved Intercontinental Exchange Inc (NYSE: ICE) - owned New York Stock Exchange’s request to change rules related to direct listing.

In approving the request, the regulator dismissed objections raised by the Council of Institutional Investors — which had sought to block the NYSE’s move, citing a threat to investor protections.

The initial approval by the SEC had come in August when the regulator said companies could raise capital by issuing fresh shares in a new variant of direct listing.

NYSE Chief Commercial Officer John Tuttle had, at the time, said that they were not trying to “displace the IPO” but rather “trying to create more options for companies and investors seeking to tap into the public markets.”

In August, Nasdaq Inc (NASDAQ: NDAQ) also proposed a rule change with SEC asking the regulator to allow companies to raise cash through direct listings.

Price Action: Intercontinental Exchange shares closed 0.55% higher at $113.16 on Tuesday. On the same day, Nasdaq shares closed 1.44% higher at $129.90 and fell 0.13% in the after-hours session.

Photo by Kevin Hutchinson on Wikimedia

 

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