This Is The NYSE's Plan To Win More Direct Listings

credit provisions, building up, things like that. That even before now, there was this big debate about whether we were in a secular or a cyclical downturn for banking and especially investment banking. Right, you had all these new rules that came in after the two thousand eight financial crisis, and there was a lot of talk about whether or not banks could ever get back to the days of making

big money. Yeah, that's exactly right. Even prior to this year, if you just look at sort of the main financial sectors of the SMP, lots of questions about financial companies business model in an era of mediocre growth, very low interest rates, Like there's just this has been a sector that people haven't been into for a lot. Yeah, and of course ultra low interest rates don't really help on the lending side either. So yeah, it feels like there have been well, there has been a decade of challenges

for banking. But okay, so, but also what I said before, it was kind of a lie because, uh, not all financial companies have struggled over the last decade, and some are doing phenomenally well. You're gonna have to narrow that down for me. So are you talking about non bank financial companies? Yeah, So basically there are other parts of Wall Street besides the big banks that are killing it. And so if you look at say the last decade company like Goldman sax uh stock you know, pre dividends

is only up over the last decade. But some of the other sort of infrastructure parts of the business, UM exchanges doing phenomenally well, and ICE, the parent company of the New York Stock Exchange, they're up. Other big in the uh sort of exchanges platforms, index providers doing phenomenally well. So when we talk about financial is not doing well, we're talking about banks. But actually a lot of parts of Wall Street really are have been on a phenomenal run. Yeah,

I think that's right. And of course you've had a you've had a pretty good year for trading revenue because you had a lot of market volatility, and now you've had a big boom in bond and debt underwriting as

well because everyone's rushing to issue. So yeah, there are parts of the banking system that are doing well, and the non banks of course, up until I keep caveating this, Wait, what's your caveat so that it's not just this's a brief period that we're talking about the Yeah, so today we're going to be talking about one aspect of I guess what you would call Wall Street that is doing phenomenally well, one interesting business, one other thing, Tracy before

we before we get to our guests. Um, this has been a quite a year for public offering. Yes, even aside from traditional I p o s, we have seen a lot of SPACs, for instance, a new type of public listing or a new way of going public without actually going through the I p O process. So it's

been an interesting time in equity capital markets. Yeah, it's super interesting because in addition to I p o s, we've had the spack boom, and we also have this sort of emergence of direct listings, which is companies saying, note, we're just gonna start trading our shares on the exchange and the market will set the price and we don't need to do the traditional I PO road show. And you know this is a also a growing area of yeah, area of new public listing. So today we're going to

talk about the exchanges and that in particular. I'm very excited about our guest. We are going to be speaking with John Tuttle, Vice Chairman of the New York Stock Exchange, is a fourteen year veteran of the exchange. Uh he works on all areas of capital markets, I p o S, SPACs and direct listing, so sort of a fascinating person to discuss the nicetiest role and all this. So John, thank you very much for joining us. Great to be

with you guys. So it has been I mean, is that fair like this to characterize like there's a lot of excitement these days about public markets. It feels like in a way that we haven't seen in a while. Yeah, I completely agree, and you know we are we're in the fourth quarter now, but I'll you know, I'll give you these two points. August was the busiest month we

had in over a decade in August. You know, when it comes to new equity issuance I p o s and August is traditionally this one of the slowest months of the year, and September of this year was the busiest month for I p o s in the over two hundred year history of the New York Stock Exchange. So the market is open. It's open for new equity issuance, whether that come in the form of I p o s,

SPACs or direct listings. So can you talk to us a little bit about that third option direct listings because my understanding is that even though there's a lot of talk about that, we haven't necessarily seen that many in recent years. In fact, I guess the most famous direct listing that I can think of is um Spotify, But that was a few years ago. So what's going on there and why the excitement over this particular route to

public markets? Yeah, really, if you take a look back over the past four years, we created more pathways to the public markets than had been created in the previous two to three decades. The direct listing was one of them, So you're right, the first one was a few years ago in April of eighteen with Spotify. Barry McCarthy, the CFO Spotify, is really an independent thinker. He helped pioneer this process. Someone we are proud to work with uh in in creating a new pathway to the public market.

And as we expected, you know, would be a slow start, but now you're starting to see the uh the slope of the curve rise. So we had one in two thousand eighteen, one in two thousand nineteen with Slack, and then we had two on the same day in September with palat Here and Asana. And it might be helpful just to take a step back and describe the differences between a direct listing and an I p O, because

sometimes parts of them get conflated. But an I p O is the most well worn path to the public markets.

It's been around for a long time. A company hires an investment bank and other advisors to sell shares into the market, and they're going to raise capital that can use to grow and expand their business, launch new products, tap into new geographies, and they conduct you know, they file an S one if they're a US company, they file an F one perspectives if they're non us issuer, and then they go out and they talk to institutional

investors market the transaction, and the night before they're listing on the New York Stock Exchanged, they get together and they say, okay, we agree to sell our shares for this price. Well, that's where they're sold to the institutional investors. That's not necessarily where the stock is going to open the next day. And so what happens after you see the bell ring and the price discovery on the trading

floor take place is the beginning of secondary trading. And when that happens, that's really the market valuing this company, not necessarily a small group of bankers and other advisors, who, by the way, are the best in the world at what they do. But there's still a dislocation. It's not the most efficient pricing mechanism for an offering, and so you see a stock open at maybe percent and in some cases recently over two higher than that I p O price, which is referred to as quote unquote the

pop um. Sometimes people want the pop most of the times they don't want that big of a pop. Now, a direct listing is a little bit different because every company goes public for different reasons. There's a variety of reasons, including that raising capital, liquidity for their shareholders, for their employees and other investors, having a share currency that they can use to conduct mergers and acquisitions down the road, to be branding as well, or even just things further

down the list about credibility. If your software company and you're listed on the public markets, your clients, no, you're not going to go out of business overnight and leave them high and drive. So in a direct listing, the priorities are a little bit different for these companies. These are companies that want the benefits of being a publicly traded company, most of which I just enumerated, but they don't necessarily need to raise capital at the time of

their listing. So if you think about Spotify, they had cash on their balance sheets. Slack had raised I believe close to a billion dollars in the private markets prior to their listing. Same with palant Here and Asana, and so they didn't want to come to the market raised capital at a arguably higher than necessary cost of capital being exemplified by that pop, and they said, is there a new pathway to the market. So so we worked

with Spotify. We worked with the SEC and other stakeholders to create this direct listing pathway and so now now you know this is an option for companies. Like I said, we started slow, we're seeing more companies planned for them. You know, in every conversation I'd have with CFOs and company founders, this is always a topic and we're going to see more of them as we go into one. Now, it's also an important distinction to make between the IPO. That bank also helps you set up your road show.

They provide stabilization activities, so they helped support the stock and it's early days. That doesn't happen in a direct listing. There's no underwritten offering, no no shares are being sold to the public. So really you're relying on the NYC S market model. You're relying on the company to meet with investors as well as part of this public debut.

In planning for the public debut, you know, before I was gonna ask you a sort of question about the mechanics of the direct listening, but before I do it, before I forget, do you think that like in the road show, the sort of informational services that the banks offer where they introduce a new company to perspective investors

has become less necessary. I'm just thinking about, like with the Internet and all different ways of sort of doing research and getting information out there, is that particular aspect of the going public, the sort of the introduction aspect, is that declining in terms of its necessariness for companies when they go public. It is changing and that is

a fact. There's no way we're going back to the two thousand nineteen style road show where a company's management team gets on an airplane, flies around the world or across the country, and back to back meetings with institutional investors. We saw during that there are new tools, so whether it be video conferencing, teleconferencing, etcetera, where you can have meaningful interactions with investors and not have to get on

an airplane to do it. So that is a when we talk to the companies that have gone public, you know, look, they'll they'll be the first ones to tell you there's nothing like a face to face interaction, whether that's with a customer, with an employee, or with an investor. But when it comes to coming to market, the efficiency uh that they're able to have by conducting the quote unquote road show virtually is well received, and I don't think we're going back to the ways of twenty nineteen and prior.

I have a related question before we go into the details on direct listings. But all of the criticisms of the I p O process, the idea of the bank's charge big fees, and the idea that maybe the stock gets miss priced in some way or the company is effectively leaving money on the table when they get the big pop on the first day of trading. You could have made any of those criticisms over the past um decades, certainly,

and maybe even beyond that. What's changed recently so that you know people are talking more about the direct listing or this back process. What was the catalyst for this current conversation. Well, I think there's been a pent up demand for new pathways to the public markets that are arguably more tailored to meet the companies objectives. So again,

the I p O is a well worn route. A lot of companies will take that route and and and like the process, even though it may result in arguably less efficient price and than you would have through other routes. But for companies that again didn't need to raise capital at the time that they're listing, either because they had cash on their balance sheet from operation or they were able to get investment in the private markets. They have a new pathway that's more tailored to meet their objectives.

Companies that want certainty of execution and want their public entrance to be more akin to an M and a transaction than the traditional I PO now have this spack And now we're even working to combine the best of some of these where we filed with the SEC last year, received approval from the staff and are just waiting on final sign off from the commissioners to bring together the direct listing with a capital raising component as well. So there are more pathways to the public markets now, that's

why you see companies more actively pursuing different routes. Now, I should also make a point but that there's been innovation within each one of those pathways. So some of the frustrations companies had or institutional investors had around things like the lock up or the allocation process are all changing.

So if you look at some recent IPOs, instead of the traditional one day lock up period, you've seen some companies incorporate more dynamic lock up periods so if there are certain thresholds or trigger points that are met, certain events happen. When it comes to uh, the ability to sell more shares to the public or employees, a will

sell more shares. One of the criticisms by some investors about the direct listing was that there was no lock up period, and they thought there was not enough control over the float and who had who had access to selling shares. So so with Palace here they incorporated a lock up period. So not only there are more pathways, but there's more innovation within each one each of those pathways as well. Tok to us about that the combining

of the direct listing of the capital rays. So as you set it up, most of are the direct listings that have happened so far. We're companies that had enough capital or raise enough capital, didn't need to get any of that I p O cash. Now you said this, you have staff level approval for combining the two. What

is the issue there? And once it's sort of fully unlocked or once it's sort of fully allowed, how many more companies just sort of uh, do you think that opens up the interest if they can also raise cash from a direct list. Yeah, we're we're excited about the direct list in plus capital raise, and it just highlights that, you know, we we've been leading a lot of this innovation in the capital markets because of how we trade stocks, our market model, the things we're able to do with

the New York Stock Exchange. Now, before I get to that point, one thing I would say is that if you look at and it helps in in in explaining why the direct listing plus capital raise is so interesting.

If you look at some of these recent technology i p o s, there has been a very small public flow, so less than ten of the company being offered in an i p O. Now, if it's an exciting company, a consumer facing brand and enterprise tech company, or or a company coming from a sector space where there's going to be a lot of investor demand, when you're only floating a very small percentage of the company, you you encounter a supply demand uh dislocation, and so there's not

enough supply coming into the market. There's overwhelming demand. And that's what's leading to this quote unquote pop. What we saw at the direct listing is that you have a much much, much bigger public float that's out there. Spotify allowed of their shares to be trading in their in their direct listing. What that that was you had more robust price discovering, more buyers and sellers could come together, and that ultimately lead to more liquidity and more efficient pricing.

So if you look at um, if you look at Spotify, Slack and Talents, here three out of the four direct listings that have come out, those three they're opening trade stand among the top ten largest opening trades in the history of US capital markets. That's because you had liquidity,

you had price discovery. You also had the ability for investors that normally would have had to wait days to institutional investors to start building a position without running up the stock, to be able to build a bigger position

more quickly because you had that liquidity. So, after those direct listings and the performance we saw from an exchange standpoint in a and and by all meaningful metrics, less volatility, more liquidity than you had in a traditional I p O, we started talking to market participants so that companies, banks, investors, regulators, others and said how can we improve this. We realized

there was strong demand. We're saying, hey, we would love to incorporate the ability to raise primary capital or fresh new capital for the company as part of the direct listing. So this was not a solution in search of a problem. There's demand in the marketplace for this, so we worked with the SEC and others to to file rule changes with the exchange. All our rules have to be all of our rule changes have to be blessed by the SEC and go through a very rigorous vetting process to

allow for that to happen. So what we have proposed UH is for if a company wants to pursue a direct listing and include a primary capital raise, they will file their registration statement just like they will with an I p O. They will disclose the number of shares they're willing to sell, they will disclose a range at which those shares will be sold, and then that they're willing to sell those shares, and that whole block of shares will need to trade at one price, one time,

and that's the opening auction of the n Y s C. So it's a it's one moment in time that will be the primary capital race, but it's going to be raised at the market price. So it's again it's contrary to an I p O, where you have again people who are very good, uh at at at their jobs setting the price, but oftentimes there's a huge dislocation between the price they're setting in what markets actually value it. You're going to open your stock and raise capital at

the market price. Mhm. Since we're on the topic of the SEC or since you mentioned it, there are people out there who make the argument that I p O S. You know, it's not just about the pricing process and the due diligence of the banks, but it's also about certain protections for new investors. What happens to those in the direct listing process, and what do you say to critics who think that this is basically a regulation light

way for companies to go public. Look, there's there have been some criticisms of the direct listing, but oftentimes those come from the folks that are being disrupted along the way and in the process. So these companies are filing in a prospectus with the SEC so an S one or an or an F one registration, there's still subject to the rigorous requirements to be listed on the New York Stock Exchange. They're still subject to the ongoing regulations of the New York Stock Exchange. In the SEC so

it's a different pathway to the public markets. It disrupts some folks that have been involved in the process and getting resistance along the way as a sign that, from my perspective, that we're doing something right. M You know, you use the term market model a couple of times in your description of how you operate. What does that mean specifically when you talk about the power of the NICECS market model? H can you describe that term a bit more? Yeah? Absolutely, and and uh and happy to

get a little bit more into market micro structure. But the New York we love, our our listeners love that stuff. I know this is the right audience, so so I'm excited. So the New York Stock Exchange operates a market model, so how we trade your stocks, and it's differentiated for not only any other domestic exchange, but any other global exchange and well as well. So what does that mean.

It means that at the very base layer in the United States, there's something that's uh any exchange in the United States, there's something called a competitive market maker system. So the exchanges incentivized market participants to quote in a company security. There's no obligation to do that. But if you show up, you are incentivized. Now, that's table stakes in the US market. On top of that is what we layer on and it's called a designated market maker.

So every company that's listed on the New York Stock Exchange interviews the market making firms and selects the firm that they want to represent them. That's in addition to all those competitive market makers that are quoting in the stock. But they're designated market maker has an obligation to be on the bid and the offer of that stock at

all times. They cannot step away on election day or when there's market wide volatility or some sort of single stock event, so they have a regulatory obligation to be there. They have an obligation to be setting the best quote in the marketplace a relatively high percentage of the time. And they have to layer interest so meaning put put orders in the order book above and below the price

to help damp in volatility. Those those those are obligations, they're not voluntary, and that results in no matter how you look at the data, stocks to trade on our market trade with narrower spreads, less volatility, more depth in the order book, which can ultimately help lower company's cost

of capital. Now, how that helps in a direct listing or in a complex transaction is you know, you have you have the market model, you have best in class technology, and you have human judgment all coming together at one place, so you get that certainty of execution. You know, companies want to de risk when they're coming to market, and so that's one of the reasons why twenty four twenty five largest ideas have put their trust in that model.

The direct listing, you don't have an underwritten offering, you do not have a stabilization agent there helping support the stock.

So having that designated market maker when you're coming out into the market with those quoting obligations helps provide superior market quality, helps you come out of the block strong and helps build investor confidence because the last thing you want to do is open the stock at the wrong price, have it start whip sawing and impact investor confidence and and just have that that um that bad market quality amplified even more. Sorry, can you talk a little bit

more about the allocation process in a direct listing. So in a traditional I p O, the banks go out and they sound out various types of investors and they asked them how much of the stock they might be interested in and at what price, and they helped to build the book around that. But how does the actual allocation work in the direct listing? Like who is able

to get the shares? Yeah, really good question and it's also something that we're we're proud to see the SEC wrote in our in the approval order for a direct listing. Plus camplies that that what we're proposing with the direct listing and ultimately direct list of the cawplories is a

more democratized process, more democratize access to the marketplace. And so you nailed it with the With an I p O, a company works with their bankers, They go out, they do a road show, they talk to institutional investors, they build an order book, they play shares with those investors, and then secondary trading begins on the n Y s C. In a direct listing, the company actually does much of

the investor education. So they'll do an investor day. Uh, they'll talk with investors about how a direct listing works. There's they're limited in in some of the things that can talk about. They can't really build a book and then on day one, you know, the stock is free

to trade for the current shareholders. For anybody out there in the whether they be institutional investors or retail investors that that uh, you know, aren't current investors, they're able to buy into those shares, so that there there really isn't an allocation process. The only difference I would say is that for a direct listing, one of the requirements is that a company has to have currently has to have a fairly distributed private shareholder base. In an I

p O, you don't. And so the reason is the n y s C and the SEC have rules saying that prior to a company going public or two commencing trading on the NYC, they have to have at least four hundred round lot shareholders around loot shareholder meeting holds more than one hundred shares and that helps ensure sufficient liquidity on day one. So on an i p O, the underwriting bank will talk to a bunch of investors and they'll place the shares with more than four hundred

investors and meet that distribution requirement. In a direct listing, because you're not allocating shares, you need to make sure that you have at least four hundred shareholders prior to your listing So for companies like Spotify, Slack, palat Here, Sonda, they had fairly robust private market trading in their stock and that coupled with employee ownership, met that four hundred

round lot threshold. But that's the currently the most meaningful difference between the allocation process and distribution criteria between an IP on a direct listing. Now, speaking of a palanteer, that was the most recent one, or I think actually they elicted on the same day as a sauna um. But Morgan Stanley was involved in the Palanteer direct listing.

Explain to us the role of banks. So even though it wasn't an I P O H, Morgan Stanley wanted the big investment banks did have some role to play. What is that role for a direct listing? Yeah, great questions. So since there aren't underwriters, the role of the banks and the banks will always have a role in the in all of these pathways to the public markets. But the role of the banks was to serve as a financial advisor, so capital f capital a official role. Morgan

Stanley and others served in that capacity. Morgan was the lead on those transactions and they they did multiple things when they helped advise the company I'm preparing for a direct listing be when it came to the execution of the transaction. Two things happen in an I p O. You know, the bank works with the with the company to establish an I p O price. Since there is no I p O price in a direct listing, we have to established what's called a reference price now prior

to trading commencing. There's always a reference price in the IPO s I p O price on a typical day, it's the price the stock closed the night before. But in a direct listing, we need to establish this reference price. No shares trade hands, uh, no transaction takes place. It's just a price at which we can input into our system so we can begin accepting orders and where market participants can start thinking about building a book around. And

so the role of the New York stackaches. We consult with the company's financial advisor to help establish that reference price the night before, and then once trading begins, the market maker who I spoke about the designated market maker, That market maker will consult with the financial advisor before opening the stock for the very first time. So the underwriter plays a slightly different role and that's as a as a financial advisor in a direct listing. I have

a different question about the Palenteer direct listing. So from what I remember, well, you were talking about how one of the benefits of doing a direct listing is that you don't have to have the lock up period that you would have in a traditional I P O process. But I think Palenteer did away um with that, or they opted to have a lock up period even though they were doing a direct listing. Why did they do

that exactly? If you know that's supposed to be one of the benefits of of going this route to public market, Well, good question, Tracy, and and and you know, companies go public for different reasons. They picked different pathways for different reasons, and then within those pathways they can innovate how they choose. Earlier direct listings did not necessarily have a lock up period,

some thought of that as a benefit. Now Palatier said we want to have one, and so they had the ability to put one in there and it did not adversely impact their transaction whatsoever. So for then it was

important to have that lock up period. You know, I don't want to speculate too much on specifically why they did that, but they did have the option to do that, just as how in an I p O you have the ability to And companies are now working with banks to modify that traditional eight day lock up period to put in more kind of dynamic lockups where again, if a company needs a certain share price or trigger UH, it'll trigger the release of sharff for trading, so something

that tracys earlier. And that was about standards, and as you pointed out that even a company that goes public through direct listing, they still have did SEC standards and S one and the n y c s own regulations. Are there conflict of interest rules or anything set up such that there is no incentive on the teams who are doing your team doing direct listings versus the sort of more regulatory side of the n y C, so

that there's no um, there's no getting around anything. Basically, Yeah, absolutely, So the the n y s C and other exchanges in the US are what are called self regulatory organizations, and so we have an independent regulatory function that reports to an independent committee of our board of directors, so their work is completely independent from that of the business side. That is meant to completely eliminate conflicts of interest, so there's no pressure the business side can exert over the

regulatory side. And is there any tension emerging or conflict between you and the banks? I mean, as you mentioned, Morgan Stanley did have a role in palant here. But obviously this process does cut out what is a you know,

an important point of part of revenue for the investment banks. Uh. Is there any pushback on them or any banks like, oh, well, We're not gonna have our companies list on the n y C anymore if the n y i C is directly competing against us, Like, I'm just sort of curious about that relationship and how the emergence of this business for you changes those partnerships actually strengthened partnerships with the banks, And I would say the banks will always find a

find a role in these type of transactions and helping their clients. Now, early on, yes, when we started floating this idea of the direct listing with Spotify, we did receive some resistance from banks saying, what are you doing? Well, you know, why are you you know this? This makes no sense, this is risky, why would you do this? And then what we saw though is a handful of bank banks leaned in and said, well, wait a second, this is what my client is hoping to achieve. This

is their goal. I want to help them achieve it. And in helping them achieve their goal, well, my economics may be slightly different than they would be in a traditional I p O. I'm building a long term relationship, and so I'm going to be the bank that come back to when they do a following offering to the market when they need when they need advice around M and A or other important transactions. And so I want

to be a good partner. And so you saw a number of banks lean in early on and UH and realized that hey, this is this is gonna be a new pathway to the public market. We see this as an opportunity to help our clients in different and further differentiate ourselves from other investment banks. So you saw them lean in, and after the successful transactions that took place with Spotify, slack now Palace here in Hassana. On top of that, you seem pretty much every bank focus on

the direct listing. Their clients are asking them about it. And if you're gonna be a good banker, you better be able to provide good advice to your clients. So we've seen the banks lean into this now. Where there was some initial resistance at first, they've come around to it. And again the economics are a little bit different from an I p O. But for those that participated in the early transactions, while you did not get a piece of a gross spread or the underwritten offering, they were

paid an advisory fee. And so while there were fewer banks on the cover for the Spotify UH perspectives than they would have had should they take in a traditional I PO, those banks received a bigger piece of a smaller pie and were able to build a new business for themselves. But you're talking mostly about the banks corporate clients.

What happens to their investor clients on the buy side, because you know my understanding in the IPO processes that banks were always trying to juggle the needs of those two groups of people. On the one hand, you have the company that's actually going public and they want to maximize their proceeds, so they probably want to sell their

shares relatively high. And then you also have the investor clients who probably want to buy into an I p O at a low price and see that first day pop, it feels like the banks might be uh, not necessarily losing the investor clients, but like certainly the investors aren't getting what they used to get from the banks, which was allocation into an early I p O. Yeah. So

a couple of things on that there. And there's a lot of different views on this, but I would say if you are looking for high quality long term investors, they're not going to shy away from you for a direct listing. A couple of things there. One is, many of these investors think your Fidelity t row Wellington, they've already crossed over and we're private investors in the company. So they built a position there and are not banking on getting a pop to meet their overall portfolio performance

targets for the year. Number two is when you look at some of the more recent tech I p O s over the past let's say two to three years, Oftentimes these companies are floating a very very very small piece of the company sub ten percent, So when you actually allocate that out to institutional investors, they're not getting that meaningful of a position, and so that pop, you know, while yes it is a pop on that security and a return on that single investment overall for that portfolio.

I don't know how many basis points it would be, but probably diminimus. They're actually focused on building positions and companies where they have convictions. And so why I think the direct listing is fascinating is because when you have more float out there from day one, when you have true price discovery and not this kind of artificial supply demand and balance that all of a sudden you had eight days the lock up release, a bunch of new shares come onto the market, and now you start finding

the actual market price for the shares. When you have that that kind of pure price discovery, if you are an institutional investor, you have conviction you want to build a position, you can do it much more quickly and with much less impact on the share price than you would in a traditional I p O. Because if you have sub ten percent of a company's offering out there and you're a big institutional investor trying to build your position because they're so little supply the market, you're gonna

be running up that stock as you build your position. So with the with the direct listing, a lot of those institutional investors are actually benefiting from having that increase in liquidity. Now, sometimes in an I p O you hear them talk about, oh, we have to allocate to a certain percent of hedge funds because we know they're going to flip it overnight and provide liquidity. Yeah, I'm fine with getting rid of that. But when it comes to institutional investors, a lot of them actually like this

process better than the traditional IPO. So let's some big picture for a second. Uh, there's just been a handful of direct listings, and of course there's been way more. There's still way more traditional I p O s. This year there's been an incredible spack boom, so they're way more of those two in terms of sort of the equity capital markets at the New York Stock Exchange. A just sort of like how big is direct listing is? Now? How big could you see it getting as part of

a share of the total business? And then what is the business model for you? Like, what is you know, investment banks take several percentage points in a traditional I p O. What is the revenue model look like for you, uh in a direct listing? And how big do you see this business uh getting or just as getting as

a share of overall UM. Yeah. So the direct listing is you're going to continue to see more of them in the market, and whether that's four in one or eight or more, you'll see that number increased from from from where we are today. We think it's important because, look, it's a differentiator for us. We mentioned the market model earlier. We're uniquely positioned to execute these types of complex transactions,

so we we think they're very interesting. From an economic standpoint, there's not much difference at all between this and I p O or any other type of listing for US, and that holds true for other exchanges as well. So we UH, We're focused on this because it's a differentiator. It's a new pathway to the public markets. We're providing a product or service to our clients that is more tailored to meet their objectives and help them be successful. So we continue to see it being part of the market.

We continue it will be an increasing part of the market. Do I think it will go on the same trajectory that SPACs have gone on this year? No? Uh, and SPACs accounting for roughly or so of the the overall I p O proceeds raised this year, UH, no, I don't see that happening, but we we will continue to see this be a product that a lot of companies consider and ultimately select going forward. Just just to be clear on something you said, Um, are there more fees

for you? Is there more revenue when a company does a direct listing versus a normal I P O or is that not a Is it not a major difference? It's not a major difference. So we still receive revenue the same way from these from these companies. How confident are you that the SEC is going to approve the direct listing with capital raising proposal? Reasonably confident? Because look, the team that's down there has done a very good

job at the SEC. This is my personal perspective. Uh. You know, Jay Clayton as chairman has made capital formation and innovation in the capital markets a pillar of his agenda down there. You've seen it come in different forms, whether it be with direct listing one point oh, which we saw a Spotify and Slack which was under the current leadership's tenure at the at the SEC, or with

this new process the directlessing plus the capital raise. Now you know, not to get too far into the kind of regulatory procedures that go along with rule changes at the SEC. But you know, we went through a very rigorous process for two forty days with the SEC walking through the direct listing with Capital Raise, talking with the staff from Trading and Markets, Corporate thin the different departments within the SEC, and ultimately in the staff's approval order,

which was done through something called delegated authority. And that's just a way of saying that the commissioners have delegated the decision to the professional staff or the expert staff, that they approved the direct listing, and they said they went other way to say two very important things. One, it's a more democratized process so allows more people, more access to more opportunities. And be it's more efficient pricing

than the traditional IPO. So a industry trade group called the Council of Institutional Investors petition for our approval to be reviewed and approved by the by the five commissioners at the SEC. We're just awaiting that right now, and

then we'll be ready to go. No matter what pathway, companies have to the public markets, having access to capital that you can use to fuel growth, so offensively or defensively in periods of time, like we saw in late Q one and Q two where companies were starving for capital and they were able to come to the public markets raise it at market rates. It's nice to hear uh many folks in the marketplace, many participants again talking about the benefits of the U S public markets, both

for companies and for investors. John, that was a great conversation. I learned a lot and really appreciate you joining us. Yeah. I hope once the world gets back to normally you can come down here for the next direct listing and see it live. Yeah, that'd be fun. I'd love to do that, all right, Thanks very Thanks John. That was great. I really like that conversation. You know, it's funny. I know, like I feel like John was being diplomatic or maybe

completely uh straightforward. But it's hard for me to imagine that this isn't going to be a source of increased angst the fact that some of this traditional imp O money might be going away in direct listings, especially also when you compare like I said at the beginning of the stock prices, like the exchanges are still doing very well at a time when the major banks are kind of stagged it. Yeah, although I don't know, I say, never underestimate the bank's ability to find new ways of

making money. Um, the only thing sort of standing in their way, I guess is regulation on that point. But I do wonder if you could get a more interesting response from some of the banks, like maybe altering the I p O process itself so that you don't abandon it completely, but maybe you do something that's more similar to an auction process, where you know, you you blast out prices to a bunch of investors at one time and then put it through some sort of automated system.

We've talked about that process is similar to that in the bond market. So I don't know, I think it's going to be interesting to see this fight or the scrum over public markets and developed between the banks and the exchanges. Yeah. No, I mean it's it's definitely true. I think, you know, there's now there's so many different models. The IPO model obviously with just still a huge the back model, this model, this model, plus the capital raise.

You know, I remember like a two thousand, like twenty years ago, you had the first sort of experiments with things like auctions and no pops and stuff, And I remember, I think Google tried to go or they did try to go public in an unusual way. Yeah. But but now it feels like perhaps some of these early ideas that never quite got off the ground seemed to be maturing and ready to go, and we can actually start to compare and contrast the different uh the most efficient

ways and the best ways for companies to go public. Yeah, for sure. I also found John's points about getting more of a float more liquidity out of a direct listing. I thought that was interesting. But I have to confess that as a former fintech reporter, part of me is just really jaded, and every time I hear someone say the word disrupt a particular process or disrupt the banks,

I immediately just think regulatory argage, trage. So much of disruption is basically regulatory arbitrage, And I think that gets back to the questions we're asking John about whether or not this is basically a way to avoid some of the red tape around the traditional I P O process. I think those are valid points, and I don't think we've seen the end of that conversation. Yeah, I'm sure regulatory arbitrage or just sort of the patchwork of regulation

is an important part of it. But the other thing to me is that you know one of the huge themes for a long time and you think about tech when you said fintech is over my mind, when it's just like network effects and the sort of the big index providers, the big exchanges, our networks, and so there is a sense that regulation aside that these companies continue to sort of extract value from the ecosystem overall or find ways that they can build up their business or

build them vertically or horizontal horizontally. I don't know which, just the exact one I'm looking for right now, one of those two, but that the sort of whether it's in tech, Facebook, Amazon, Nicey, Nas Deck, etcetera, there all like sort of these very central infrastructure players in any industry finding the way to sort of make more money while the peripheral players finding it harder. Yeah, you don't. You don't seem very compelled about it. You're like whatever,

I'm trying to chack fully. It's fine. No, it's just like what I probably changed the subject. That's fine, we'll have to talk about it. So okay, Yeah, let's just leave it there. I don't wanna because after you leave me hanging like that. Let's let's just write this up really bad. Okay, I promised we will talk more about it later. Okay. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Wisn't Thought.

You can follow me on Twitter at the Stalwart. Follow our guest on Twitter, John Tuttle, He's at j R Tuttle. Follow our producer Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levie at Francesca Today, and check out all of our podcasts under the handle AD Podcasts. Thanks for listening.