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Our Legal, Primary Markets and Secondary Markets Expert Groups contributed to our response to the FCA's consultation on reforming the availability of information in the UK equity IPO process.

Overall, we commented that it would not be appropriate to extend the proposed rules to firms providing underwriting or placing services on IPOs on MTFs, such as AIM and NEX Exchange. We noted that companies listed on these MTFs are very different to those admitted to trading on regulated markets.

A vast majority of AIM IPOs involve fundraisings from qualified investors, with almost no element of an offer being made to the public. For such transactions, there is no commercial rationale for unconnected research to be produced as the unconnected bank or broker would not generate any commission income. Connected research is often the only research available. Opening up the possibility for unconnected research to be produced would also not solve the problem of the dearth of investment research on smaller companies.

Nonetheless, we acknowledged investor demand in receiving financial and other information about a company seeking to be admitted on a public market in good time before they are asked to participate in a money raising. We therefore encouraged the London Stock Exchange to consider this issue with small cap fund managers and nominated advisers. We stressed that the FCA should not take action unless a real market failure on MTFs is identified.

More broadly, we agreed that connected research should continue to play a role in the UK IPO process as it plays an important role in the price formation process for an IPO by including prospective financial information and provides an insightful analysis of a company for investors.

Although we acknowledged that publishing the final prospectus earlier may be valuable to an investor wishing to receive more detailed and comprehensive information on the company before making their investment decision, this should not be extended to MTF IPOs as there is very rarely a retail offering in respect of such transactions.

We also noted our concerns with the proposed rules set out in Appendix 1. We commented that some issuers regard an ITF announcement being required prior to the investor education and initial price discovery phase as potentially detrimental and exposing them to execution risk and the risk of not raising funds. Requiring issuers to publicise the approval of a prospectus or registration document before any meaningful marketing or book building has taken place could make an IPO less attractive. This could be mitigated if distribution to potential investors was done in private

Click here to download our response (pdf)

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