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The FCA has published Market Watch 83 which highlights compliance risks and best practices for corporate finance firms advising small and mid-cap issuers, particularly around handling inside information and market abuse controls.
The FCA makes the following observations in relation to market soundings – where inside information is selectively disclosed to potential investors to sound out their views ahead of a capital raising or other transaction – to help firms benchmark their systems and controls:
- Number of market sounding recipients – Firms should have procedures in place to manage the number of recipients during market soundings to limit the flow of inside information and ensure there is a clear justification for sharing it;
- Disclosure controls – Firms should have "gatekeeper" arrangements, allowing only "wall-crossed" individuals to receive inside information, to ensure a consistent approach and minimise opportunities for leaks;
- Information consistency – All recipients should receive the same information about a deal – approved scripts are recommended; and
- Broker involvement – Where multiple brokers are involved, it is important to check whether a market sounding falls within the safe harbour. For example, where an issuer‑appointed broker engages a second broker to conduct market soundings, the second broker would not benefit from the safe harbour.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
