By, Mark Bergman, Esq., Partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP; John Satory, Esq., Counsel in the Corporate Department of Paul, Weiss, Rifkind, Wharton & Garrison LLP; Sofia Martos, Esq., Associate at Paul, Weiss, Rifkind, Wharton & Garrison LLP.
The UK Financial Conduct Authority (the “FCA”), through a Policy Statement, recently introduced a number of new Conduct of Business Sourcebook (“COBS”) rules, effective July 1, 2018, that intend to improve the quality and timeliness of key information made available to investors in advance of an IPO.
The overall goal is to restore the centrality of prospectuses in informing the investment decision of investors.
This Client Memorandum reviews some of the issues with the existing UK IPO process, summarizes the new COBS amendments, discusses implementation and provides some guidance on potential impacts of the ruling on the IPO marketplace.
Under the existing UK IPO process, the announcement by the issuer of its intention to float (the “ITF”) and the related syndicate research are published simultaneously. This is followed typically by a 14-calendar day blackout period.
The FCA believes that this current typical sequence of events raises several concerns, including that investors do not have access to the prospectus sufficiently early in the IPO process for it to play a proper role in informing their investment decisions; and that connected analysts for syndicate banks have unrestricted access to meetings with the issuer’s management and their corporate finance advisers, which heightens the risk of bias being imparted to their research.
Also, the FCA believes that market participants have begun to engage in certain practices that may be inconsistent with the requirements of EU Market Abuse Regulation (“MAR”).
In its summary of the COBS Amendments, the Client Memorandum reviews such issues as the publication timing of IPO research, creating a level playing field between connected and unconnected analysts, whether the new COBS rules apply to analyst research on IPOs conducted on multilateral trading facilities (“MTFs”), conflicts of interest in the production of connection research, and consistency of the new COBS rules with MAR.
In concluding remarks, the authors suggest that due to its emphasis on the prospectus or registration document, the FCA’s reforms will likely lead issuers and their advisers to focus, first and foremost, on the prospectus or registration document and use the prospectus drafting process to build the equity story and the disclosure profile, rather than let the analyst presentation dominate the drafting process, as is often the case today.