We reported in our June bulletin that the OFT had announced that it planned to undertake a market study into equity underwriting and associated services following concerns that had been raised by corporate users of equity underwriting services. The OFT has now received responses from concerned users of services in this market, and this has formed the final scope of the market study.
An in-depth review of this market was felt necessary given that there had been dissatisfaction with equity underwriting services and that the ability of a business to raise capital is an essential element for economic growth and productivity. Equity underwriting services generally include advice on how and when to raise capital, preparing any necessary compliance documents, promoting the equity issue among the shareholders, looking after the administration of the issue and guaranteeing to purchase any unsold shares at the end of the issue.
The survey will examine equity underwriting for the different types of share issue used by listed companies to raise capital in the UK, including rights issues, placings and other types of follow on offer. The study will be limited to FTSE 350 companies and will not consider initial public offerings. The study will assess the way the market works and whether there is any potential for improvement. In particular the study will focus on how underwriting services are provided, how they are purchased and how the regulatory environment affects the provision of the services. The study will also consider corporate broking services and corporate lending, to the extent necessary to inform the OFT’s understanding of equity underwriting, given that brokers usually become underwriters of the share issues.
The OFT will now begin a detailed analysis of the market to identify any areas for improvement and will issue a public statement on progress before the end of 2010.