Direct ListingDPL
In a direct listing, a company’s existing shares start trading on an exchange without a traditional underwritten offering. The opening price is set by the exchange’s opening auction rather than by banks.
A direct listing takes a company public by listing its existing shares on an exchange without a traditional underwritten IPO. The opening price is set by buy and sell orders in an auction rather than by bankers. Since 2020, NYSE rules also allow companies to raise new money in a primary direct listing.
- Category
- Fundamentals and Macroeconomics
- Reading time
- 4 min
- Also called
- Direct public listing, Direct public offering, DPO
- Updated
Direct listings in plain words
In an IPO, one or more underwriters agree to buy a set number of shares from the company at a fixed price and then sell them on.1
A direct listing skips that step: no underwriter buys the shares first or sells them to investors before trading opens.1
Supporters say the open market sets the price on day one, without reduced allocations or mandatory lock-up periods.2
How a direct listing works
Prepare disclosure
The company files a registration statement as for an IPO.
Choose the type
Decide whether new money is needed; a primary direct listing lets the company sell new shares without a traditional underwritten deal.1
Skip the underwriter
Skip the underwriter: nobody buys the shares in advance to resell them.1
Run the opening auction
Buy and sell orders set the first price.
Sell new shares
For a primary listing, the company's new shares go into the opening auction as a special sell limit order.1
Trade freely
There are no reduced allocations or required lockup periods.2
Worked examples
Example 1 — Fees saved
$20m savedA hypothetical company would pay a 6% underwriting fee on a $500m IPO.
| IPO fee | $30m |
| Direct listing advisory | $10m |
| Saving | $20m |
Costs were lower because no underwriter bought and resold the shares.1
Example 2 — Auction price
Market sets priceHypothetical orders clear at $40, versus a $32 IPO price a banker suggested.
| Banker price | $32 |
| Auction price | $40 |
| Gap | $8 |
Supporters argue that letting the whole market set the first price gives a fairer day-one value.2
Example 3 — Volatile first day
-22.5%A hypothetical listing opens at $40 and ends the week at $31.
| Open | $40 |
| Week end | $31 |
| Move | -22.5% |
Without lockups, many holders can sell at once — there are no reduced allocations or required lockup periods.2
Direct listing vs IPO
| Aspect | Direct listing | Traditional IPO |
|---|---|---|
| Underwriter buys shares | No | Yes |
| Price set by | Opening auction | Underwriters and book |
| Lockup | Not required | Usually required |
| New capital | Only in primary listings | Yes |
When direct listings are used
Well-known companies
Brands that need no marketing, like Spotify.
Liquidity for insiders
Existing holders can sell on day one.
Cheaper listing
Avoids an Initial Public Offering underwriting spread.
Raising capital
Primary listings sell new shares via the Exchange auction.
Advantages and disadvantages
Advantages
- Lower underwriting costs.
- Price set by the market.
- No required lockups.
- Existing holders get liquidity.
Disadvantages
- No underwriter price support.
- Opening price can be volatile.
- Less suited to unknown companies.
- Raising money needs a primary listing.
Going deeper
Read as far as you need. Each level builds on the one before it.
A listing without an IPO
Beginner
Why it differs
Intermediate
With no pre-sale to an underwriter, the first trade is set purely by buyers and sellers.1 The Order Book auction decides the price.
Primary direct listings
Advanced
Newer rules let a company raise money in a direct listing without a firm-commitment underwriting, by placing a sell limit order that trades only in the opening auction.1
Common mistakes
Assuming new money is raised
Classic direct listings sell only existing shares.
Expecting price support
No underwriter stabilises the stock.
Ignoring supply
With no lockup, selling can swamp demand and hit Liquidity.
Comparing to IPO pop
There is no offer price to 'pop' from.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- A direct listing skips the underwritten IPO.
- Price is set by an opening auction.
- No lockup is required.
- Primary listings can raise new capital.
- Early trading can be volatile.
Frequently asked questions
Can retail investors buy on day one?
Is a direct listing cheaper?
Which exchanges allow them?
Further learning
- Initial Public Offering
The traditional route.
- Exchange
Where the listing happens.
- Order Book
How the auction prices shares.
- Limit Order
The order type used.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- SEC. Order Approving NYSE Proposed Rule Change Relating to Direct Listings (Release 34-90768) (opens in a new tab) Checked .
- New York Stock Exchange. NYSE Direct Listings (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.