What is a direct listing in ECM?

A direct listing is a process through which a company can become publicly traded without the involvement of underwriters. This method allows existing shareholders, such as employees and early investors, to sell their shares directly to the public without the company needing to issue new stock. By doing this, the company doesn’t undergo the traditional IPO process, which typically involves price setting and allocation done by underwriters. This can be particularly attractive for companies that have a significant demand for their existing shares and want to allow current shareholders the opportunity to sell without the dilution that comes from issuing new shares.

The other options do not accurately represent the nature of a direct listing. While it does not involve underwriters, it does not imply that this method is always preferred over IPO transactions; each method has its own advantages depending on the circumstances of the company. Additionally, while direct listings do mitigate some risks associated with traditional underwriter-led IPOs, this is not its defining characteristic. Lastly, the notion of a market where private companies can sell shares to the public without a formal process dilutes the concept of a direct listing, as this process still requires adherence to certain regulatory and market practices.