Following the regulator's discussion paper last year on the availability of information during the IPO process, the FCA has now launched a consultation paper in aims of improving the “quality and range” of information available to investors and analysts.
It has called for a policy rethink in order to force change after the IPO market failed to respond to criticism over how it worked.
The watchdog says the UK equity market could be at risk from biased research and practices potentially “inconsistent” with its Market Abuse Regulation.
The consultation closes on 1 June, with final rules scheduled to be published in a policy statement in Q4 2017.
The FCA is calling for three major changes to the IPO process:
- enhanced standards of conduct during the production and distribution of connected research
- a prospectus document that plays a more central role
- the rise of unconnected IPO research.
The prospectus on an IPO is published far too late into the process, and investor education in the run-up to an offering is based too heavily on ‘connected research’ conducted by bank analysts who form part of the IPO’s book-running syndicate, according to the FCA.
Analysts are often involved in meetings with issuer’s management and advisers prior to the flotation and before creating the underwriting syndicate which, the FCA said, “heightens the risk of bias being imparted to their research”.
“The prospectus, which should be the primary source of information on the issuer, is currently made available late in the process.
Arguably, investors do not have access to this key document sufficiently early for it to play its proper role in informing their investment decisions.
Rather, investor education and initial price discovery are driven by ‘connected’ research produced by analysts within banks that are part of the IPO’s book-running syndicate providing underwriting or placing services to the issuer.
“Moreover, analysts within non-syndicate banks and independent research providers lack access to the information they need to produce ‘unconnected’ research on an offering,” it said.
The FCA said there had so far been ‘widespread support’ for calls on registration documents to be published earlier.
It also recommended granting unconnected analysts access to the IPO issuer’s management before connected research is published in order to give investors a wider, and more balanced, range of information.