Financial watchdog publishes IPO research reforms, but is criticised for its limited focus
Investors in London stock market floats will now have access to independent analyst research about the company which is listing, under new rules published by the Financial Conduct Authority (FCA) today.
The watchdog has announced a set of reforms which will mean investors no longer have to rely on the advice of analysts at a bank which is helping the company to list.
The reforms have been widely welcomed, although some market players seemed unsure as to whether increased access to research would actually make the initial public offering (IPO) process “fairer”.
Read more: The Financial Conduct Authority launches consultation over plans to reform IPO process
“There is an implicit assumption that publication of unconnected analyst research will help to price shares more ‘fairly’,” said Nicholas Holmes, of law firm Ashurst.
“It is at least questionable as to whether the proposed changes will lead in practice to a substantial increase in the volume or quality of independent research.”
Independent researchers will, from next July, have access to company information and to the management team of the share issuer before the connected bank publishes its own report.
Tom Vita, a partner at law firm Norton Rose, noted that the changes would heat up debates about an issuer’s true valuation — a positive development. But he added that it would also “inevitably lengthen IPO timetables, increasing execution risk for companies coming to market”.
Read more: The Financial Conduct Authority wants to alter the IPO process – potentially changing how the blackout period works
Ashurst also said it was “interesting” that the FCA’s reforms focused solely on analyst research, and did not address the wider “fundamentals of IPO pricing”.
Some suggestions raised in the government’s 2014 Myners Report included setting a wider price range for IPOs, and allowing this range to be shifted.
The latest developments are part of a focus by the FCA on reviewing the UK’s capital markets to ensure they are attractive post-Brexit.
It follows the regulator’s controversial suggestions to loosen rules for state-backed IPOs, allowing certain companies (such as oil giant Saudi Aramco) to float a smaller portion of the business and qualify for a premium listing with less onerous disclosure and regulatory rules.
Read more: Saudi Aramco IPO: Institute of Directors urges City watchdog against bending listing rules for London mega-float