On March 1, 2017 the Financial Conduct Authority (FCA) published a Consultation Paper proposing a package of measures to reform the availability of information during the UK equity initial public offering (IPO) process. In April 2016 the FCA published a Discussion Paper on this topic, which noted that some areas of the process need improving, namely the timing, sequencing and quality of information being provided to market participants.
The Consultation Paper includes detailed consideration of the feedback received to the Discussion Paper, as well as policy analysis in relation to certain key issues. The Consultation Paper also proposes a package of policy measures intended to improve the range and quality of information available to investors during the IPO process, including a series of rules which seek to ensure that a prospectus or registration document is published, and providers of ‘unconnected research’ have access to the issuer’s management, before any connected research is released. The package also includes new guidance clarifying the FCA’s expectations on analysts’ interactions with the issuer’s management and their corporate finance advisers when considering the IPO mandate and a bank’s syndicate positioning.
New Handbook rules
New Handbook rules are intended to restore the primacy of an approved prospectus document, significantly improve the range and quality of information available to investors, and facilitate the availability of such information early enough in the process to support more balanced investor education and price discovery.
Proposed new rules in the Conduct of Business sourcebook (COBS) include the following:
- Investment banks should enable a range of unconnected analysts to communicate with the issuer’s management team before connected research (ie by analysts from syndicate banks) is published. If this is not done, the syndicate banks must prevent their analysts from communicating with the issuer or its external advisers.
- If a range of unconnected analysts is able to communicate with the issuer’s management, connected research can be published one day after publication of the prospectus or registration document. Otherwise connected research cannot be published until seven days after publication of the prospectus or registration document.
- The FCA will work with trade associations representing investment banks and independent research providers to develop ‘research guidelines’ to cover access terms and the ‘range’ of unconnected analysts to be offered management access.
The FCA also seeks views on a proposal from the investment banking community which would prevent lengthening the IPO timetable, as well as views on the consistency of handling inside information in the IPO process with obligations under the Market Abuse Regulation (MAR), particularly in the context of the content of analysts’ presentations containing inside information.
Finally, the FCA also seeks views on the application of these proposals to multilateral trading facilities such as AIM and the NEX Exchange growth markets.
Proposed Handbook guidance
New Handbook guidance clarifies the FCA's expectations on analysts’ interactions with the issuer’s management and their corporate finance advisers around the time an underwriting or placing mandate and subsequent syndicate positioning is being considered.
The FCA’s existing guidance states that an analyst should not become involved in activities which are inconsistent with the maintenance of their objectivity and provides examples of activities which would ordinarily be considered inconsistent with an analyst’s objectivity, including ‘pitches’ for new business. The FCA is proposing to add further guidance to clarify that it would regard ’participating in pitches’ in new business’ to include where an analyst interacts with the issuer or its representatives until:
- the firm has accepted a mandate to carry out underwriting or placing services for the issuer; and
- the firm’s position in the syndicate has been contractually agreed.
The proposed guidance is intended to reinforce the framework in COBS 12 to further mitigate the risk of bias being imparted to connected research and should also reinforce the benefits introduced by the new rules described above.
The FCA has requested comments on the Consultation Paper by June 1, 2017. It will consider feedback and then publish a Policy Statement later in 2017.
(FCA, Consultation Paper CP17/5: Reforming the availability of information in the UK equity IPO process, 01.03.17)