CP17/5: Reforming the availability of information in the UK equity IPO process

23/06/2017

The Law Society this month published its detailed and considered response to the FCA's consultation "CP17/5: Reforming the availability of information in the UK equity IPO process".

The FCA consultation paper proposes amendments to the Conduct of Business sourcebook (COBS), one of which amendments - COBS 11A.1.4B R - proposes:

“The firm [involved in the production of investment or non-independent research] must ensure that a range of unconnected analysts … are given the opportunity … either:
(a) to join the firm’s analysts in any communication with the issuer team that is made or received before the firm disseminates any investment research or non-independent research about the issuer client or the relevant securities as described in COBS 11A.1.4AR(1); or
(b) to be in communication with the issuer team in a way that satisfies the following conditions:
(i) the mode of that communication must be reasonably appropriate for the purposes of enabling those unconnected analysts to receive information from and make enquiries to the issuer team, so that the unconnected analysts are able to form a substantiated opinion about the issuer client or the relevant securities as described in COBS 11A.1.4AR(1).”

With regard to this, The Law Society responded:

"Issuers should be able to choose the form of communication (face to face or electronic or a combination) that is most appropriate to the circumstances of the issuer and the relevant offering. Issuers should be able to impose additional restrictions on electronic access, where relevant (for example, regarding the length of time that any presentation may be viewed electronically)."

Bearing in mind the FCA’s desire to widen the scope of the IPO process to ensure access to relevant persons and materials by unconnected as well as connected research analysts, we believe the Law Society’s recommendation of using, as an alternative, a secure electronic platform such as iRoadshow, with the ability to facilitate restrictions on access including length of viewing time, is eminently sensible.

iRoadshow provides the next generation of online roadshow and can be specifically set-up for either Pilot Fishing/Early Look stages, or Investor Education/ IPO Research or Management Presentation stages. It features advanced security, including Dynamic Watermarking, and is designed to democratise and facilitate access: users can participate on mobile, tablet or PC, rather than having to download an App (in certain jurisdictions) or sit in front of a PC.

In addition, iRoadshow provides the most detailed audit reporting of any electronic roadshow platform, including Page Level Reporting – providing underwriters, syndicate and management with unrivalled insight into exactly which pages investors and other users are – and aren’t – viewing. Detailed, granular-level reporting which can be generated in real-time and downloaded to CSV, PDF or Word formats provide a permanent record for compliance, also keeping with the FCA’s consultation paper proposal which includes:

“Article 10 and 14 of MAR respectively prohibit unlawful disclosure of inside information and insider dealing by any person. The handling of potential inside information is, therefore, of significant importance for market participants. It is important that all persons involved with the information chain during an IPO have a process to identify whether the information they disclose or receive is inside information.”

Additionally, the CP17/5 Consultation paper also addresses cost in its ‘cost benefit analysis’ Annex. This states:

“Our proposals also allow the issuer or syndicate banks to provide unconnected analysts with an opportunity to be in communication with the issuer’s management …. assuming that the mode of communication is a physical meeting through an analyst presentation (separate to connected analysts), the issuer or banks would incur additional costs for hiring a venue… the total cost of hiring a typical City of London venue for 60-100 unconnected analysts is estimated to be approximately £25,000-£30,000. .. If, rather than a physical meeting, any separate communication between the issuer’s management and unconnected analysts were to be facilitated through one or more web-based communications, conference calls or email exchanges, the above costs would reduce significantly.”

Compared with the cost of physical meetings, the use of iRoadshow provide significant cost savings as well as greater access for parties unable to attend a physical meeting. Added to this the benefits of helping compliance with MAR via detailed audit reporting, we think The Law Society, in encouraging electronic access, may just be onto a winner.

The FCA’s consultation paper can be viewed here

The Law Society’s response can be viewed here

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