Shearman & Sterling LLP | Financial Regulatory Developments Focus | International Standards Body Seeks to Tackle Conflicts of Interest and Conduct Risks in Equity Capital Raisings
Financial Regulatory Developments Focus
  • International Standards Body Seeks to Tackle Conflicts of Interest and Conduct Risks in Equity Capital Raisings
    The International Organization of Securities Commissions has published a consultation report in which it seeks feedback on proposed Guidance to address the significant potential conflicts of interest arising from the role of intermediaries during key stages of an equity raising.

    IOSCO has identified a number of key risks. In the early, pre-offering, phase of an equity raising, conflicts of interest can arise where analysts employed by firms managing the securities offering may be under pressure to present a positive view of the issuer. During the investor education and price-formation phase these "connected" analysts may produce conflicted research and conflicts can also be present during the allocation of securities. There can be both conflicts of interest and risks of misconduct where staff employed within firms that are managing an equity raising enter into personal transactions. These issues can damage investor confidence and the effectiveness of the capital markets as route for issuers to raise finance.

    The proposed Guidance consists of eight separate measures that are designed to increase the range and quality of timely information available to investors, make allocations more transparent and enhance the integrity and efficiency of the process as a whole. IOSCO recognizes, however, that differing market practice, legal and regulatory frameworks in place to govern the equity capital raising process means that conflicts of interest and associated misconduct risks vary across jurisdictions. For this reason, ISOCO has built in some flexibility in the proposed Guidance that should enable national regulators to tailor its implementation in accordance with the specific risks of their jurisdiction.

    Comments are invited by May 4, 2018. The finalized Guidance will not be binding, but IOSCO encourages its members to consider the proposals carefully in the context of their legal and regulatory frameworks.

    View the Consultation Report.