The City watchdog wants to give independent analysts the chance to produce research on flotations so that investors can have access to information free of professional conflicts of interest.
The Financial Conduct Authority said yesterday it intended to ensure that any company planning a listing would give analysts not working on the float the same access offered to banks leading the deals.
Regulators are concerned that the system of only allowing analysts at banks directly working on an IPO to have access to managers and financial information creates a conflict of interest at the heart of listing regulations.
The FCA also said that the late publication of prospectuses meant investors did not have sufficient time to fully evaluate a company’s prospects before deciding whether to buy its shares.
Christopher Woolard, executive director of strategy and competition at the FCA, said the system ensured that analysts came under pressure to produce favourable research because of their banks’ role on an IPO.
“The market study confirmed the concerns of investors and other market participants that the prospectus, which should be the primary source of information on companies seeking to raise finance through the IPO process, is made available very late. The result is that so-called ‘connect research’ written by analysts within the book-running syndicate [the group of banks leading an IPO] is the dominant source of information available to investors during a crucial stage in the process,” Mr Woolard said yesterday.
Analysis by the FCA pointed to two particular forms of market failure inherent in the way IPOs are marketed. First, the regulator warned of “asymmetries” where, because investors have less information than banks selling new shares, they will make worse decisions, making the listing less efficient. Second, the lack of competition in the production of research gave no impetus for better analysis, which was also to the detriment of the flotation.
Nicholas Holmes, of Ashurst, a City law firm, said that the FCA’s work could lead to more independent research but that it would not make much difference in the long term.
“In practice it is unlikely that these proposals will lead to a significant increase in the volume or quality of non-connected analysts’ research,” Mr Holmes said.
The authorities have been looking for years at ways to improve company floats.
Officials have also considered the role of independent equity advisers on listings amid industry criticism that they can lead to overly aggressive pricing, with the result that shares perform poorly when a company is quoted.