Gurley explains direct listings guarantee order fills for retail investors while traditional IPOs do not provide such access.
“If you are in a direct listing, any direct listing, and you are at a Schwab account, a Robinhood account, I don't care what, and you put in an order that's a penny higher than the closing price, you get filled. That is not true in a traditional IPO.”
Gurley contrasts direct listings where any retail investor gets filled versus traditional IPOs where retail gets only 5 percent.
“That is not true in a traditional IPO. In fact, retail's often held the 5%,”
Gurley explains direct listings use existing daily stock-opening processes, removing steps rather than adding new technology.
“What Barry McCarthy unlocked and and discovered was that the very same processes that you use at the NYSE and the Nasdaq to open stocks each and every day can actually do the match that that that do a direct listing opening. And so in the direct listing process, you're actually removing steps”
Gurley argues direct listings remove steps since IPOs use equivalent opening process the next day anyway.
“And so in the direct listing process, you're actually removing steps because once you do an IPO, you actually do with the exact equivalent of direct listing opening the next morning.”
Gurley explains Barry McCarthy discovered existing daily stock opening processes can enable direct listings.
“What Barry McCarthy unlocked and and discovered was that the very same processes that you use at the NYSE and the Nasdaq to open stocks each and every day can actually do the match that that that do a direct listing opening.”
Gurley distinguishes direct listings from Dutch auctions by noting systems already exist in markets for daily stock openings.
“But what's really remarkable and very different from the Dutch auction, these systems are already inside of our financial markets.”
Gurley argues traditional IPOs lack market-based price discovery and equal access for all participants.
“In the traditional IPO process, neither of those things are true. You don't have a market based price discovery, and you don't have open and equal access to all.”
Gurley reports NYSE president Stacy Cunningham says efforts are underway to add primary capital to direct listings.
“And then the thing we heard from people like Stacy Cunningham, who runs the NYC, where you guys are right now, there are efforts underway to add primary capital to the direct listing.”
Gurley illustrates direct listings allow any retail investor to participate at opening price, unlike IPOs.
“If you put in a bid at $380.01 from a Robinhood account and they open at 38, you're filled. That is absolutely not true in the IPO process.”
Gurley describes direct listing as simply matching supply and demand unlike traditional IPOs.
“We have a wonderful new age alternative called the direct listing that just matches supply and demand.”
Gurley says direct listings with primary offerings are now clearly superior to both IPOs and SPACs.
“Today's a super important day because I think it'll be very hard for anyone to argue whether it's a traditional IPO or a SPAC that that's gonna be better than a direct listing with a primary offering.”
Gurley provides IPO underpricing data showing escalation from $2B in 2016 to $30B last year.
“under first day under pricing in 2,016, 2,000,000,000. 17, 4,000,000,000. 18, 7,000,000,000. 19, 9,000,000,000. Last year, 30,000,000,000.”
Gurley argues no one would choose traditional IPOs anymore because in 2020 the average IPO was underpriced by 50%.
“I think to the extent that we can effectively integrate raising primary capital with the direct listing, no one would choose a traditional IPO process anymore because it's gotten perversely worse in 2020, the average IPO was underpriced by 50%.”
Gurley reports seven of eight direct listings trade above first match, outperforming traditional IPO cohorts.
“Yeah, there've been eight high profile ones. Seven of them interestingly are trading above that first match that they did, which is really astounding.”
Gurley argues SPACs are only viable because broken IPO process makes direct listings look expensive by comparison.
“But, you know, it appears to me that the thing is gonna, is either gonna slow down or they're gonna step in and do those types of changes you're talking about.”
Gurley cites Jay Ritter data showing direct listing companies wildly outperformed traditional IPO peers.
“Jay Ritter put out some data at the end of August that you guys probably saw where he analyzed all the companies that have chosen the direct listing path and they've wildly outperformed their IPO peers, which I think is interesting”
Gurley argues direct listings use supply and demand pricing like bonds, which is how markets should work.
“You can actually use supply and demand to determine price and allocation. And that's what the direct listing does. That's how every bond is priced.”
Gurley cites Jay Ritter's data showing direct listing companies wildly outperformed traditional IPO peers.
“Jay Ritter put out some data at the end of August that you guys probably saw where he analyzed all the companies that have chosen the direct listing path and they've wildly outperformed their IPO peers,”
Gurley argues direct listings use supply and demand for pricing, like bond markets, unlike traditional IPOs.
“There's a modern way to do it. You can actually use supply and demand to determine price and allocation. And that's what the direct listing does. That's how every bond is priced.”
Gurley argues the IPO process is broken due to regulatory capture and most people don't understand how it actually works.
“I think the IPO process almost certainly also because of regulatory capture is remarkably broken. I don't actually think the average citizen even knows.”
Gurley argues freshman students would design IPO process as anonymous auction matching supply and demand.
“They would craft a direct listing. It's obvious that you should match supply and demand and be indifferent to who the It should be an anonymous auction.”
Gurley argues citizens mistakenly believe IPOs work like direct listings with price-based allocation.
“I think they think a bunch of people put orders in, you sort them based on who's willing to pay the highest price”
Gurley says Nasdaq and NYSE pushed for direct listings but banks were dragged into it reluctantly.
“They were dragged into direct listings. I would I would say because I spent a ton of time with them, both the Nasdaq and the NYSE were pushing to get these things across the line,”
Gurley argues IPOs should match supply and demand through bidding rather than bankers handpicking prices.
“if you ask any first year comp sci student and first year finance student to write a model of how an IPO should work, you would allow everyone to bid and you would award the shares to the highest bidder. It's just not like, it's not, it should just be tautological.”