This week we look at proposals by the FCA which, if implemented, would result in significant changes to the process for bringing a company to market through an IPO. We also catch up on the latest private equity reporting guidelines from PERG and proposals to reform stamp duty on paper documents.


The Financial Conduct Authority (the "FCA") has launched a consultation on proposed changes to the IPO process. The changes are designed to address the perceived bias in connected research published on placings, and the lack of access for independent researchers to produce analysis.

The consultation paper can be found here. It follows a discussion launched by the FCA in April 2016.

What is the current process?

On a typical initial public offering (IPO), a company seeking to come to market will engage a range of investment banks to place the company's shares in the market and (potentially) to underwrite any shares that are not placed.

Alongside this, analysts within those investment banks will typically prepare research on the company in order to provide information about the company to potential investors. This "connected research" is invariably published before the prospectus is made available, typically when the company announces its intention to float (if, in fact, it makes a float announcement). Following this announcement, these "connected analysts" will disseminate their research to potential institutional investors.

It is only around two weeks later that the first draft of the company's prospectus (the so-called "pathfinder") is released to selected potential investors. A roadshow will then take place for around two weeks, following which the company will issue its final, public prospectus. By this time, commitments will have been given for a significant proportion (if not all) of the placing shares, meaning the IPO will have effectively been completed.

What is the FCA concerned about?

The FCA's concerns are two-fold. First, although connected analysts are supposed to be independent from an investment bank's book-running team, the FCA is concerned the research produced by them may be influenced by pressure on the banks to "sell" the company and portray it in a positive light.

It believes this is less likely to be a problem with "unconnected research", but notes that unconnected analysts typically do not get access to a company's management until very late in the process (if at all).

Second, the evidence gathered by the FCA suggests that, due to the timing of a typical IPO process, investors place more reliance on connected research than on the prospectus itself. The FCA believes this is detracting from the primacy of the prospectus as the key information document on an IPO.

What is the FCA proposing?

To address this perceived issue, the FCA is consulting on amending its Conduct of Business Sourcebook (COBS). This would place certain obligations on each firm that is involved in placing and underwriting the company's securities.

Firms would be required to provide a range of "unconnected analysts" with an opportunity to join in meetings between the company and the connected analysts before any connected research is published. Those firms would need to undertake a written assessment of the potential range of unconnected analysts, evaluate whether there is a reasonable prospect that those analysts would enable investors to make a betterinformed assessment, and keep that assessment for five years.

To reassert the primacy of the prospectus, the FCA is proposing to require firms not to publish their connected research until after the prospectus or registration document has been published. If unconnected analysts are allowed to participate in meetings, the connected research could be published the day after the prospectus is published. Otherwise, firms would need to wait seven days before publishing their connected research.

Practical implications

If put into effect, the FCA's proposals would have a significant effect on the current practice for bringing a company to market and would lengthen the IPO timetable for many prospective issuers.

By incorporating the new mechanism into COBS, the FCA is proposing to place the onus of ensuring adequate access for unconnected analysts on the investment banks participating in the IPO placing, rather than on the prospective issuer. Financial institutions would need to put new procedures in place to identify potential "independent" analysts and record the steps they take to give them access to management.

As framed in the paper, the FCA's proposals would apply to IPOs on regulated markets (i.e. the LSE Main Market and High Growth Segment, the NEX Main Board and Euronext London) but not to other markets (e.g. AIM and the NEX Growth Market). This is due to the lesser role that connected research plays in IPOs on non-regulated markets. However, the FCA intends to gather further evidence to decide whether to consult on similar proposals for non-regulated markets in due course.


The Private Equity Reporting Group (PERG) has published an updated version of its good practice reporting guide. The updated guide can be found here.

The guidelines update the examples from practice to accommodate the findings in PERG's 2016 annual report. These cover narrative describing the company's performance over the past year; trends and factors affecting future development and performance; human rights; and gender diversity.


The FCA has launched its next quarterly consultation, which can be found here. Among other things, the FCA is proposing to amend certain exemptions from the requirement for a prospectus set out in the Prospectus Rules to bring the Rules in line with the forthcoming EU Prospectus Regulation.

At the moment, a company with shares admitted to a regulated market (see above) can admit further shares to trading without publishing a prospectus, provided those shares represent not more than 10% of its admitted share capital within a 12-month period. The FCA proposes to raise this limit to 20%.

Also, a traded company can admit any number of shares to trading without publishing a prospectus if those shares result from the conversion or exchange of existing securities. The FCA proposes to cap this at 20% of the company's admitted share capital.

The changes would apply from the date on which the new Prospectus Regulation comes into effect. A prospectus would still be required if the company is admitting a new class of shares to trading.


The Office of Tax Simplification (OTS) has published a progress report and call for evidence in relation to its on-going project of simplifying stamp duty on paper documents. Stamp duty is currently payable on a limited range of documents, most commonly transfers of certificated shares in a company.

The OTS is proceeding on the assumption that stamp duty on paper documents should be abolished and replaced with a modern, electronic system. It is seeking views on how best to achieve this.

The report focusses on whether electronic stamp duty should run alongside the existing stamp duty reserve tax (SDRT) regime or should be merged with it to create a new "umbrella SDRT". (SDRT is payable on agreements to transfer "chargeable securities". This applies most commonly to transfers through the CREST system.)

So far, evidence suggests a preference for merging the two regimes, although this would involve a significant degree of work to ensure that the new regime applies to the correct range of securities and incorporates the existing stamp duty exemptions (e.g. intra-group transfers and low-value transfers).

Because amounts payable under the two systems are calculated differently in some circumstances, any merger would have an impact on transactions that include (for example) an earn-out or a post-closing price adjustment. The OTS is asking how this should be addressed.

Finally, the OTS sees an electronic stamp duty system as operating on a "self-assessment" basis. Its report contemplates different models, the simplest of which would involve a simple electronic payment that generates a receipt. These would then be passed to the registrar to complete the transfer.

The OTS' report can be found here. It is seeking feedback before 31 May 2017.