Direct listing – ACCA Advanced Financial Management

My name is Steve Chen, a fellow member of ACCA and course director at APC ( teaching ACCA online courses to students from all around the world. This article will explain the topic ‘Direct listing’ in ACCA Advanced Financial Management (AFM) exam.

Direct listing is often known as listing by introduction. This is a choice for private companies to publicly trade their shares without going through the traditional IPO process, ie no need to engage with underwriters; no need to lock shares of original shareholders before they can be sold; shareholders can trade their shares on the first day when company obtains a listing status.

In the traditional IPO process, the share price is set by investors from roadshow which the underwriter and company then determine. However, under direct listing, the price is set by reference to the private valuation and many other factors such as sustained trading in the private market by the stock exchange. Again, human judgement places a vital role in setting the price.

Usually, not every company could use this approach to become listed as many of these companies do not have an easy-to-understand business model and diverse shareholders base. However, workplace chat company Slack and the music streaming service Spotify successfully used this approach to obtain a listing status in the stock exchange.

Case Study – Direct listing requirement from New York Exchange:

A company can qualify for a direct listing with at least 400 round lot (hundreds) holders and:

· a primary capital raise with public market value of at least $100 million or

· a $250 million total public float or a combined aggregate of a primary capital raise and public float of at least $250 million

A company with less than 400 round lot holders can be given a grace period to meet the minimum round lot requirement if it:

· has a public market value of at least $350 million

· does a primary capital raise with a public market value of at least $250 million

· has a combined aggregate of a primary capital raise and public float of at least $350 million

Source: NESE

I hope this article helps regarding the topic of direct listing. I select this topic because many Financial Management students found this topic vague as this topic is not frequently tested in the exam. Therefore, in study text or lectures from other tutors, this topic is not discussed in detail.

In addition to providing ACCA lectures online, I also wrote articles in ACCA AB magazine. Besides, I am the author of four accounting books. If you are interested in studying ACCA courses with me, please visit my website for further information, where you can find many of my ACCA demo video lectures.

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