The way companies list on the UK stock market currently is flawed and needs to change, according to a report the UK financial regulator published today.
Included in the changes the Financial Conduct Authority has proposed are a reduction in the cross-selling of services by banks to companies preparing an IPO, changes to the way shares are allocated and how research is carried out on companies about to list.
Christopher Woolard, director of strategy and competition at the FCA, said while the year-long study showed many investment and corporate banking clients were getting the service they want, there were areas where improvements could be made.
Notably, these were in the way shares are allocated in the listings, which the watchdog said were weighted towards institutions such as pension and investment funds as the banks generate more fees from these investors.
"As a result, the watchdog will undertake supervisory work with a targeted group of banks to better understand how potential conflicts of interests are managed when shares in IPOs are allocated," said Woolard.
Another proposed change is to delay the publishing of research by connected banks until after the prospectus is published, while access to the company’s management should be available to independent analysts as well.
The FCA wants to make the prospectus the primary source of information for investors rather than having to rely on the in-house research from the bank handling the float.
Services such as corporate broking and cheap loans that tie to a bank for an IPO also need to be overhauled, the regulator said, while expressing concern that league tables for investment and corporate banking services may be "unreliable."
Overall it was a range of measures that would remove potentially anti-competitive practices and start a debate on the IPO process to make the market work better by giving investors the right information at the right time, said Woolard.
Reaction was mixed. Some advisers said removal of the possibility of more lucrative work later may mean higher costs for bank services for smaller customers in the early stages of their development.
Others were more positive. Tom Hinton, head of Capital Markets at crowd funding platform SyndicateRoom, added that making the process fairer and more accessible will enable investors to make confident investment decisions.
“The public is vital in improving liquidity for companies so providing a simple, clear and transparent way to access these offers, on the same terms as institutions is clearly beneficial.”
The FCA has called for comments on its proposals by 25 May, after which it will decide the measures it will carry forward.