FCA proposes IPO shake-up to give more information to investors

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Big reforms of rules for initial public offerings in the UK have been proposed by the City regulator to give better information to investors on companies that seek a flotation.

The Financial Conduct Authority said on Wednesday that information about issuers in IPO processes should be made available sooner and to a wider range of investors than is currently the case.

The proposal is designed to address long-held concerns in the City over the uneven playing field within the UK’s IPO process.

There have long been concerns that the current system — where prospectuses are tightly held documents that can be published up to six days after shares first start conditionally trading — fosters conflicts of interest between issuing companies and their lending banks, and locks out the wider investment community from vital research.

The move is part of a wider shake-up of the UK’s equity markets by the FCA and follows separate proposals earlier this month around the listing of foreign-based companies. The proposals would bring disclosure rules on IPOs for UK more in line with the US.

Chris Woolard, director of strategy and competition at the FCA, said: ‎

A well-functioning IPO market with high standards of conduct is an essential part of the UK’s capital markets.

The IPO process has considerable strengths, but the proposals we have outlined in today’s Consultation Paper are designed to improve the range, and timeliness of higher quality information that is available to investors during the process.

The FCA said a previous discussion paper found “some areas of the process that need improving, namely the timing, sequencing and quality of information being provided to market participants.”

The regulator is concerned that what is known as “connected research” — produced by parties involved in IPOs — is the “dominant source of information available to investors during a crucial stage of the process. ”

The FCA added:

This is of particular concern given the conflicts of interest that arise during the production of connected research, including analysts coming under pressure to produce favourable research on an offering if their bank is to secure a place on the book-running syndicate.

The Consultation Paper includes 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.

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