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Expanding Direct Listings Would Weaken Investor Protections

While direct listings to raise primary capital may sound good in theory, the reality is that the practice circumvents the diligence process and many of the most important investor protections


WASHINGTON – The American Securities Association (ASA) sent a letter to the Securities and Exchange Commission (SEC) outlining several investor protection concerns regarding the expanded use of direct listings to raise primary capital from America’s retail investors. ASA’s letter comes at a time when rule proposals are being filed at the SEC that would fundamentally alter the IPO market and current securities laws.


“While direct listings to raise primary capital may sound good in theory, the reality is that the practice circumvents the diligence process, many of the most important investor protections set forth in the Securities Act, and the very reason the SEC was formed: to protect America’s retail investors against fraud,” ASA CEO Chris Iacovella wrote in the letter.

“Allowing this would be a complete end run around the traditional underwriting process and it would create a massive loophole in the regulatory regime that governs the offerings of securities to the public.”


The primary advocates of direct listings are private investors in highly valued “unicorns” that stand to benefit the most from selling their shares directly to the general public. But two high-profile direct listings— Spotify and Slack— haven’t worked out particularly well for retail investors.


“If the SEC were to approve this method of raising capital, then it must make clear that financial advisors, exchanges, control shareholders, and directors involved in a direct listing automatically incur statutory underwriter liability under the 1933 Securities Act and be required to hold the regulatory capital necessary to act as a de facto underwriter,” Iacovella urged.


To read the full letter to the SEC, click here.




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ASA’s regional financial services companies work in communities across the country to create jobs, grow the economy, and increase prosperity for all Americans. The ASA exclusively represents the capital market and private client interests of its members and seeks to promote free market principles making it easier to access financial advice and capital. ASA members help Americans save for retirement, provide Main Street businesses with capital to grow, and advise hardworking Americans how to create and preserve wealth. For the latest updates follow @AmerSecurities and learn more at http://americansecurities.org/.