The Financial Conduct Authority (FCA) has published its proposed reforms to improve the timing, sequencing and quality of information in the UK IPO process.
It has set out its proposals in a consultation paper "Reforming the availability of information in the UK equity IPO process".
As the consultation paper notes, the prospectus, which should be the primary source of information on the issuer, is currently made available late in the process. Arguably, investors do not have access to this document early enough for it to play its proper role in informing their investment decisions. Rather, it is "connected" research, produced by analysts within banks that are part of the IPO's book-running syndicate providing underwriting or placing services to the issuer, that drives investor education and initial price discovery. Further, analysts within non-syndicate banks and independent research providers lack access to the information they need to produce "unconnected" research on an offering.
To address these issues, the FCA is proposing a package of changes to its Conduct of Business Sourcebook. These would apply to any investment bank that has agreed to carry on regulated activities that include underwriting or placing equity securities in an IPO on a regulated market for which a prospectus is necessary. This would include an IPO on the Main Market of the London Stock Exchange but not AIM. The new rules and guidance would provide as follows:
- A range of unconnected analysts must have the opportunity to join the bank's connected analysts in any communication with the issuer's management. Alternatively, before publication of any connected research by syndicate bank analysts, they must have the opportunity to otherwise interact with management enough to enable them to form a substantiated opinion. If the bank does not comply with either of these requirements, it must prevent its own connected analysts from communicating with the issuer or its advisers.
If the unconnected analysts are allowed to join the bank's connected analysts in any communication with an issuer's management team, connected research may be published one day after publication of the prospectus or registration document. If not, connected research cannot be published until seven days after publication of the prospectus or registration document.
To mitigate the risk of bias to connected research, analysts will not be able to interact with an issuer to whom the investment bank is proposing to provide underwriting or placing services. The prohibition will apply until the investment bank has accepted an underwriting or placing mandate and the parties have contractually agreed and documented the bank's position in the syndicate.
Depending on the nature of the feedback it receives, the FCA expects to publish a policy statement outlining changes to the Conduct of Business Sourcebook later in 2017.