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On 18 September 2018, the International Organization of Securities Commissions (IOSCO) published Guidance in the form of a package of measures, which reflects the high standards of conduct by market intermediaries in the equity capital-raising process.
A survey found that conflicts of interests and associated conduct risks were present within the equity capital-raising process, with the key risks being:
- conflicts of interest and pressures on "connected analysts" during formation of research on an issuer in the pre-offering phase;
- prominence of conflicted connected research during investor education and price formation in equity IPOs; And
- conflicts of interests during the allocation of securities.
- Additional risks also included the management of underwriting risk by firms managing the offering and associated conflicts of interest in the pricing of securities and conflicts associated with personal transactions by staff employed within firms managing the offering.
- The measures suggested are:
- Measure 1: requiring firms to take reasonable steps to prevent analysts from facing pressure to take a favourable view of the offering from the issuer's representatives.
- Measure 2: requiring that once an underwriting/placing mandate has been awarded, firms take reasonable steps to prevent connected analysts from being improperly influenced and ensuring that the analysts remain independent in their judgment and research.
- Measure 3: requiring that once an underwriting/placing mandate has been awarded, firms have appropriate controls to manage potential conflicts of interest and associated conduct risks arising from connected analysts performing an internal advisory role within the firm while also producing research on an equity securities offering.
- Measure 4: encouraging timely provision of information to investors in equity securities offerings.
- Measure 5: requiring firms to maintain an allocation policy that sets out their approach for determining allocations in an equity securities offering and to provide the issuer with an opportunity to be involved in the process.
- Measure 6: requiring firms to maintain records of allocation decisions made.
- Measure 7: requiring firms to manage any conflicts of interest that arise in relation to pricing an equity securities offering, to keep the issuer informed of key decisions/actions, and give the issuer an opportunity to be involved in decisions regarding pricing.
- Measure 8: requiring firms to take reasonable steps to prevent employees with access to confidential information on the issuer or the offering from entering into or facilitating any personal transactions which would involve misuse or improper disclosure of the information.
The guidance is non-binding but the IOSCO encourages members to consider the extent it should be implemented in their legal and regulatory regimes regulation.
The full guidance can be found here:
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.
