[HN Gopher] U.S. approves NYSE listing plan to cut out Wall Stre...
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U.S. approves NYSE listing plan to cut out Wall Street middlemen
Author : pseudolus
Score : 274 points
Date : 2020-12-22 20:07 UTC (2 hours ago)
(HTM) web link (www.reuters.com)
(TXT) w3m dump (www.reuters.com)
| gostsamo wrote:
| What if the investors pay for the due diligence? The candidate
| company must be forced to be radically transparent while the
| auditor will be incentivized to provide value to the investor and
| be liable if there is missing info due to negligence or
| corruption.
| mchusma wrote:
| I think if investors value the third party stamp of approval
| there are many ways to charge for it. Just because you don't
| have to pay an ibank doesn't mean you can't pay an ibank.
| gostsamo wrote:
| I agree, just the company under consideration will have to
| provide comparable level of access to information to enable
| meaningful analysis and this is hard to happen without
| regulation.
|
| The other option is if the company does not cooperate because
| it is free not to which will turn the IPO into a cat in a bag
| investment. It will attract the risk-seeking, the stupid, and
| those with insider information. On the other hand, if the
| company does not have the marketing cloud and is underfunded,
| it will have to spend some money to attract the investor's
| attention which might be as costly as paying a dedicated
| proxy. It would be interesting to watch.
| sjg007 wrote:
| I mean is the S1 with SEC approval to list not enough?
| typenil wrote:
| How will all the poor rent seekers survive?
|
| What's happening to this country? I thought regulatory capture
| was the #1 priority, here.
| ArtWomb wrote:
| Kinda awesome that the Roblox delayed IPO may have been the final
| straw here ;)
| smabie wrote:
| Definitely was not the "final straw"
| sjg007 wrote:
| What do you mean?
| jart wrote:
| Finally IPOs for the 99 percent. It's been nine long years since
| getting the ball rolling on Occupy Wall Street and we're finally
| seeing reforms that will weaken the enemy.
| pseudolus wrote:
| "Investor groups, however, warned it could diminish their
| protections as the banks perform due diligence on the companies."
|
| That's positively hilarious in light of some of the dogs that
| investment banks have knowingly foisted on the public.
| doonesbury wrote:
| Agree! Let's not think leather shoes and shirt cuffs is always
| better. There's a long running issue with fee-for-service
| giving what the client wants. Ok to be fair to banks they could
| easily be value add but only if they face stiffer down side on
| fees when fraud, bs, and bad evals happen earning indeed
| commanding those fees on the upside or average case. It's
| separating risk from reward that is the issue largely.
| cm2187 wrote:
| To turn the argument on its head, imagine the dogs that even
| investment banks would have declined underwriting and that will
| now have a shot with investors.
| stock_toaster wrote:
| bitconneeeeeeeect!
| miohtama wrote:
| Unfortunately the regulation is there to make sure investment
| decisions can be made fairly and based on factual material.
| They are not there to tell you if an investment is profitable
| or not.
| stjohnswarts wrote:
| You mean packaging up trillions of dollars worth of F rated
| investments into so many layers of garbage financial twiddling
| that they become A rated investments? Never happened.
| philip1209 wrote:
| Independent financial audits of public companies seem to create
| the most value.
| BitwiseFool wrote:
| Fear not citizen! I am protecting you from yourself for the
| price of a small fee. You should be glad I'm here to rubber
| stamp your investment decisions!
| odiroot wrote:
| > small fee
|
| A generous 7%. I would like a small cut of this small fee.
| echelon wrote:
| I appreciate your sarcasm, but we all know it isn't just a
| small fee.
|
| Airbnb lost out on over half the money they could have
| raised.
|
| edit:
|
| Priced to the banks at $68/share [1], opened to the public at
| $146/share the next day [2]. Free money for the banks, missed
| opportunity for the Airbnb balance sheet, and continued shut
| out of retail investors (even those with a large net worth).
|
| This keeps happening. Snowflake and C3.ai left over 100% on
| the table to the bankers, and DoorDash left almost as much
| [3]. Bankers continue to get free money that the companies
| could use themselves for hiring and other expenses.
|
| [1] https://www.nytimes.com/2020/12/09/business/airbnb-ipo-
| price...
|
| [2] https://www.barrons.com/articles/airbnb-prices-ipo-
| at-68-a-s...
|
| [3] https://www.fool.com/investing/2020/12/20/why-i-didnt-go-
| all...
| Multiplayer wrote:
| This. All to the benefit of the investment bank and their
| best customers who are rewarded with allocations of "hot"
| ipo's.
|
| How I know this: I have been the recipient of allocations
| in the past.
| JackFr wrote:
| In return for telling them how much your interested and
| at what price.
| leetrout wrote:
| First I've heard of this - do you have a source handy?
| chrisked wrote:
| He's referring to Goldman most likely deliberately
| underpricing the stock. During the IPO the investment
| bank gives access to certain folks: Their clients. They
| doubled their money almost risk free since they know
| demand.
| leetrout wrote:
| I didn't know that was a thing.
| xyzzyz wrote:
| > They doubled their money almost risk free since they
| know demand.
|
| They only did double their money if they can sell without
| pushing the price down. That's not easy to do for
| institutional investors.
| nescioquid wrote:
| Right. That's why I always thought buying IPOs is a bit
| of a mug's game.
| deadmutex wrote:
| I think OP is alluding to the fact there was a big pop on
| IPO day (which indicates that the IPO was mispriced).
| Though that is not a "fee", but money left on the table
| for the company.
| agency wrote:
| And the pop in Airbnb's case was pretty enormous. They
| priced at $68 and closed on the first day at $144.71
| asdfasgasdgasdg wrote:
| I continue to be flabbergasted any time these companies
| don't run an auction. Ideally N auctions, spread out
| through the day.
| xyzzyz wrote:
| An IPO pop does not necessarily mean that any money has
| been left on the table: just because _some_ shares trade at
| $146 doesn 't mean that _all_ of them could have been sold
| for the same price. The demand curves slope downwards.
|
| However, when the pop is as large as it was in the case of
| Airbnb, it does seem like they could have raised more cash.
| cortesoft wrote:
| This is not the same as an underwriting fee, and there is
| still the possibility that a company underprices their
| stock offering as well.
| [deleted]
| hourislate wrote:
| They were going to drop WeWork/Wewhatever on the Public.
| vmception wrote:
| I'm beginning to think that there should be tier's of investor
| protection that get activated by numbers of complaints or
| similar metrics. Similar to what we've seen at county-level
| pandemic restrictions.
|
| Right now all we have are pendulums that swing to overfit
| against bad behavior, and then swings back the other way
| because they made it too costly for good actors to participate
| at all.
| Enginerrrd wrote:
| The problem with this is it probably would allow the
| government to pick winners via political favors, which would
| almost assuredly happen in the present climate if even
| remotely possible.
| vmception wrote:
| I'll elaborate to clear that idea up, the government
| wouldn't be picking in this model, certain frameworks of
| investor protections wouldn't apply _across the entire
| industry_ if certain industry wide thresholds were met.
|
| so instead of only rulemaking and comment periods to change
| bits and pieces of the protections, there would be the
| overarching trend to dictate whether it applies or not
| boh wrote:
| In all fairness there is a legit service provided by
| underwriters. Most companies offering IPOs aren't well-known tech
| companies with an informed market ready to buy. They're more
| likely totally unknown and lack investor interest. Making a
| direct sale without underwriter support (who will buy a portion
| of your offering to act as a market-maker and stabalize the
| price) can potentially fail to raise the necessary capital. Yes
| underwriters demand fairly steep fees, but they also take huge
| risks themselves.
| JackFr wrote:
| So absent a banker, how are they gonna price their offerings? A
| bank does have Avery large book of institutions who are covered
| by active reps. A startup does not have a mechanism in place to
| run a road show, gauge investor interest and ultimately price the
| deal. While leaving a ton of money on the table is a legitimate
| complaint, pricing and selling a deal isn't a simple problem.
| snowwrestler wrote:
| This rule does not forbid the hiring of banks to do all or any
| of these things. It just gives companies the option not to.
|
| I expect this will improve both service and pricing from banks
| for work related to IPOs in the long run, as they now have to
| prove their value in absolute terms, not just vs competing
| banks.
| fakedang wrote:
| You could just avoid the big banks and go for a smaller
| boutique that seeks to maintain its reputation with a companies
| first policy. The bigger banks are usually chummy with all
| institutional investors and will certainly pull shit to make a
| higher profit. An elite boutique bank, or a reputed banker
| running the show, can work wonders. For tech, one such bank is
| Qatalyst, for healthcare it's Centerview, like that, for
| instance. Even better if they can run an auction process for
| you.
|
| That being said, the number of good "reputable" bankers is
| increasingly declining as they've soon realized they could make
| much more money on the investing side. There is a serious
| dearth of excellent bankers and a lot of mediocre bankers. This
| policy could not have come at a better time, if not earlier.
| sqrt17 wrote:
| Google did an auction: https://www.cnbc.com/2014/08/19/es-took-
| off-but-the-auction-...
|
| For many pricing problems, auctions are the answer. Doing a
| roadshow and tickling investor's interest is a separate
| problem, but many startups already have a size where they are
| well-known to a big enough share of investors.
| egwor wrote:
| There's a lot of auction theory that comes into play that an
| individual investor is unlikely to know and I would imagine a
| startup may not fully comprehend either. I would worry that
| this is still not a level playing field.
| whatshisface wrote:
| This will force investment banks to have an underwriting
| fee no greater than the expected loss due to the company
| not understanding "auction theory." Also, any investor that
| doesn't think they understand auctions can simply wait a
| day and receive the exact same opportunity that an
| investment bank would give.
| bostonfincs wrote:
| Google still used Morgan Stanley to run the book, the auction
| was just for better pricing doesn't solve the rest of IPO
| worries at all.
| semiquaver wrote:
| In cases where the direct listing does not raise new capital
| (all of them so far) this is easy. You conduct the same sort of
| auction at the beginning of the first trading day that occurs
| for every stock every morning.
| pg_bot wrote:
| It is a simple and solved problem, you run a dutch auction
| (Google did it).
| drcode wrote:
| How nice of the SEC to no longer stop companies from doing what
| was obviously something they should have been allowed to do all
| along.
| [deleted]
| mikeyouse wrote:
| I find myself aligning closely with Bill Gurley on this since it
| sure seems like Wall St. is just siphoning value off of their
| mispricing of tech IPOs. Bill's been a huge advocate of change
| and he's really enthusiastic about this, so seems like a really
| positive change:
|
| https://threadreaderapp.com/thread/1341438991401242625.html
|
| _Edited with threadreader link: Thanks toomuchtodo_
| [deleted]
| whack wrote:
| Can someone comment on how significant this is, wrt tech startups
| choosing if/when to go public? My understanding is that tech
| startups are primarily delaying going public, because of the
| compliance requirements, and the short-term pressures of
| reporting their revenues/profits. To what extent are IPO fees
| holding them back?
| tempsy wrote:
| I don't think this changes whether a company decides to go
| public or not. This mostly helps "hot" private companies,
| mostly in tech, go public in a way that gives shareholders a
| chance to sell more shares on Day 1 and prevent bankers and
| investment banking clients from locking in an immediate return
| from a pop due to a mispricing at a price that is not available
| to other public investors.
| snoshy wrote:
| As always, Matt Levine has a great explainer on this subject,
| from Nov 2019:
| https://www.bloomberg.com/opinion/articles/2019-11-27/soon-d...
| choppaface wrote:
| Did a direct listing previously require an underwriter? I guess
| this change just further diversifies the options a start-up has
| for an exit.
| cgrusden wrote:
| First off, how is Palantir "cash rich"? A look at their
| financials they're losing money just like all the other shit
| startups on the NYSE.
| ur-whale wrote:
| Looks like the ICO craze has at least a positive effect by
| lighting a fire under the establishment's ass.
|
| As usual, competition FTW.
| spoonjim wrote:
| Can someone explain why the SEC is so active during this
| presidential transition time? Is it something about Trump, Biden,
| their appointees, or something generically about the transition
| period?
| AnimalMuppet wrote:
| Speculation: They're often this active, but we didn't notice,
| because presidential politics was sucking up all the attention.
| mgraczyk wrote:
| WSJ has a much, much better article.
|
| Unlike Reuters, it actually includes a link to the SEC release
| that the entire article is about.
|
| https://www.wsj.com/articles/sec-approves-nyses-plan-for-new...
| KerryJones wrote:
| WSJ is great, and also paywalled for most
| LatteLazy wrote:
| I guess this was inevitable since they started allowing listing
| by reverse takeover but still... <Countdown to a massive fraud
| begins>
|
| Edit: Drocer88 correctly points out below that reverse takeovers
| have always been legal!
| toomuchtodo wrote:
| Are investment banks truly working that hard to prevent fraud
| for the inflated fees (~5%) they're charging? The SEC still has
| a government funded securities regulator role to play.
|
| If net benefit increases, we should celebrate when middlemen
| are disintermediated. If there's evidence this causes harm to
| non-accredited investors (any investors of significant amount
| really), we can strengthen regulator resources (and for likely
| a lower cost than continuing to shovel money to IBs for these
| deals).
| LatteLazy wrote:
| I won't pretend I know. That said, the main advantage to
| these middle men is that they agree to buy and hold (directly
| and for select clients) shares at IPO. That means they have
| skin in the game and if the price falls at IPO or soon after,
| they're burnt. So I guess they're doing at least some due
| diligence.
|
| Too often regulators only come in (decades) after frauds
| started (Enron, WorldCom, Wirecard). And frauds fall through
| cracks between regulators too as it isn't clear who is
| responsible for what.
|
| I'd actually like to see more of this sort of role elsewhere
| in finance: having your accounts signed off by a big 4 firm
| would mean a lot more if they had to payout in the case of
| fraud. But that's a somewhat different issue I just thought
| I'd add...
| cinntaile wrote:
| Regarding your first paragraph about directly owning shares
| for themselves and for clients. That means they are also
| incentivized to underprice the shares so that they can make
| a bigger profit. They get to buy in at a lower price and
| sell at a higher one.
| LatteLazy wrote:
| Yes, that's correct. This is why the vast majority of
| IPOing shares RISE in price early on.
|
| Partly this is countered by the competition between
| banks, if Morgan Stanley tell you they can IPO you at
| 50usd but Jefferies say 55usd, you go with Jefferies.
|
| It's also good news for anyone who continues to hold
| equity (CEOs, founders, early/angle investors etc). Only
| the initial equity sold goes at this discount. For this
| reason many companies will start by offering small
| amounts of equity and later issuing more at the market
| price.
|
| Of course, its also a very hard question to answer: how
| much is a share of company X worth? When there is no
| market to reference. So the discount is also a risk
| premium both for fraud and for mis-valuation.
|
| I actually think IPOs are one of the hardest parts of
| finance to fully understand and to do and so are one of
| the most interesting. That's not to say that there aren't
| conflicts of interest and dodgy activity. Just that there
| are 101 moving parts.
| [deleted]
| drcode wrote:
| My impression is their fees are closer to 50%: Somehow, only
| close friends of the investment banks are allowed to buy
| shares at the listing price, the rest of us have to wait
| until after the 2x price pop in the markets... at least
| that's what has been happening in most recent IPOs.
| smabie wrote:
| why do owners of pre-IPO shares care? When people talk
| about investment banks ripping companies with regards to
| the IPOs, they're not talking about the public. Moreover,
| most retail investors aren't going to participate in the
| pre-market auction in the first place, so the results will
| be the same
| colechristensen wrote:
| There's a difference between a regulator and someone with a
| financial interest in success.
|
| There is a certain effectiveness for some kinds of problems
| that being financially interested in truth brings which is
| harder to do consistently with regulation.
|
| I am not trying to suggest a specific course is better, but
| pointing out that there is value in aligning doing the right
| thing with profit motive.
| SmellTheGlove wrote:
| Sure, and I don't think that with this plan, there's
| anything stopping investment banks from agreeing to
| purchase direct listed shares at IPO in an arms-length
| transaction. Given the need to file audited financials,
| among other components of the regulatory burden to go
| public, is the investment bank charging a fee to act as a
| fiduciary really adding much protection?
| drocer88 wrote:
| Reverse takeovers have always been legal. There's nothing
| necessarily wrong or evil in skipping the banks in midtown
| Manhattan. Nothing wrong in a direct listing , either.
|
| The Wikipedia entry on "reverse takeovers" (
| https://en.wikipedia.org/wiki/Reverse_takeover ) cites the 1955
| deal between REO and Nuclear Consultants, Inc. The company
| eventually became Nucor ( https://finance.yahoo.com/quote/NUE
| ).
| LatteLazy wrote:
| Sorry, I thought they were banned by the SEC at some point
| and then unbanned, but that's wrong! I stand corrected.
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