FCA reveals plans to restructure IPO process

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The FCA has outlined potential remedies to the way in which information is provided to investors during the IPO process.

In a paper published today, the regulator has suggested tweaks to “blackout” periods, which typically run for 14 days between research on issuers being published by banks, and circulation of the actual prospectus.

The FCA argues investors only get access to important information late in the process, while analysts unconnected with the IPO process have little detail to base their research on.

Instead, the regulator provides two suggestions “to stimulate debate”, arguing that any research by analysts connected to the IPO should be delayed until after prospectuses are published.

In addition, independent research providers and analysts from unconnected banks should also be invited to meetings with management.

FCA director of strategy and competition Christopher Woolard says: “We want to start a discussion on changing the sequence of the IPO process to make the market work better by giving investors the right information at the right time.”

At the same time, the FCA has also published the interim findings of its investment banking market study, and notes that improvements are needed to encourage competition in primary capital market services.

The study was first launched in May last year and focused on choice, transparency, bundling and cross-subsidisation in debt and equity capital markets, and mergers and acquisitions.

The FCA found that many, particularly larger clients, were well served by models that see banks providing both investment and corporate banking services, with lending and corporate broking services usually provided at low returns.

However, it also raises concerns that cross-selling could make it harder for banks not offering lending facilities to compete in the primary market.

As a result, it is calling for an end to the use of contractual clauses that purport to limit clients’ choice of providers on future transactions.

The FCA also expresses fears that some banks may seek to reward favoured investors when allocating shares in an IPO, and pledges to further probe potential conflicts of interest.

The regulator is asking for views on its investment banking findings up to 25 May, ahead of the publication of a final report in summer, with any proposed interventions expected to be subject to consultation.

The IPO paper is open for responses until 13 July, with feedback expected later this year.