The UK’s financial regulator is considering changing rules governing how information is shared ahead of an IPO.
The Financial Conduct Authority (FCA) has proposed a shake-up to the listing process following a study of anti-competitive practices in investment banking.
Highlighting a number of conflicts of interest within the process, the regulator points to the blackout period, which usually lasts two weeks, when analysts working on the sale do not publish research ahead of the prospectus being released. Those analysts receive favored access to the issuing company’s C-suite, says the FCA.
At the same time, other analysts miss out on that vital contact with the company’s bosses – ultimately stifling independent research. It means investors receive important information late in the process, too.
‘Analysis in the market study has also found evidence that some banks may seek to reward favored investor clients when allocating shares in an IPO,’ states the FCA in a press statement. It calls for an end to ‘the widespread use’ of contractual clauses that limit a company’s choice of future providers.
The regulator is now looking at alternative IPO models, comprising ‘different combinations of two simple ideas: a requirement to delay the release of any research by analysts at banks connected to the IPO until after the prospectus is published, and a requirement to invite analysts from unconnected banks and independent research providers to any meetings with management.’
Pre-IPO IR
‘We mustn’t forget that an awful lot of companies come to the UK because we are perhaps the pre-eminent market in the world,’ comments David Lloyd-Seed, deputy chair of the UK’s IR Society. ‘We are seen by investors to have a good and robust regulatory regime where there’s an inherent element of trust.’
He adds, however, that ‘the playing field has been tilted against the issuers and shareholders because of some of the things [the FCA] has identified – so anything that can level that is clearly welcome’.
While part of the problem lies in the regulatory process, which the FCA is addressing, the regulator is also seeking a better flow of information, and Lloyd-Seed says companies should have an IRO on board as early as possible.
‘IPO candidates have become slightly better at IR,’ he notes. ‘There was a period when they were being encouraged by others not to appoint someone until quite late in the process but I think that’s a big mistake. You need someone inside the tent who can articulate the investment story clearly – and who knows who to articulate it to. You also need to start building strong relationships with a group that’s going to be your most important stakeholder in the future: your owners.’
