LONDON: The market regulator has proposed big reforms to rules for UK initial public offerings to give investors better and earlier information, as the watchdog seeks to keep Britain “open for business” after Brexit. The Financial Conduct Authority said on Wednesday that information about a company planning an IPO should be made available sooner, and to a wider range of analysts and investors. It is an attempt to assuage long-held concerns about conflicts of interest in a process where investment banking instructions can be won off the back of favourable analyst research.
The FCA warned that some current practices involving the early dissemination of information to a select pool of analysts could potentially breach EU rules against market abuse. No enforcement action is at present being mooted but the FCA put investment banks on notice that it expects them to properly manage conflicts. The business of new flotations is one of the most fiercely competitive parts of the capital markets, and the FCA’s plans affect some of the biggest banks in the world that dominate the UK’s primary markets, including JPMorgan, Morgan Stanley and Bank of America Merrill Lynch. While the regulator unveiled its thinking on the topic a year ago, before the UK’s vote to leave the EU, the FCA’s message of keeping the UK open for business will be welcomed by politicians who want to attract business in the run-up to the UK leaving the EU.
“In order to retain its pre-eminence worldwide, the UK markets need to be clean, transparent and efficient,” said Chris Woolard, the regulator’s head of strategy and competition. “In periods of uncertainty as we face together now, it is only on this basis, by meeting these tests, that the UK can continue to consider itself a global centre for the issuance of securities.” The timing and transparency of information in the UK’s IPO process compares badly with other popular markets such as the US.
The proposals, part a wider shake-up of the UK equity markets, come as the market for IPOs is dwindling. Last year saw 44 floats generating $6.7bn — both the lowest number and amount since 2012 — amid difficult market conditions and worries about Brexit. There have been five IPOs with proceeds of $542m so far in 2017. That compares to a strong start to 2017 in other global markets, which have seen 187 IPOs globally worth $15.2bn, the strongest annual start since 2007, according to Thomson Reuters. At present a company gives an early presentation to analysts connected with investment banks working on its IPO about a month before it informs the market of its intention to float. Connected analysts then publish their research and after a blackout period of 14 days it is shown to select institutional investors alongside a draft prospectus known as a pathfinder, as a way to gauge demand and price.
