New International Guidance Addresses Conflicts of Interest and Conduct Risks in Equity Capital Raisings

The International Organization of Securities Commissions has published a final report setting out Guidance to its members to address the significant potential conflicts of interest arising from the role of intermediaries during key stages of an equity raising. IOSCO consulted on a draft version of the guidance between February and April 2018.

IOSCO has identified a number of key risks. In the early, pre-offering, phase of an equity raising, conflicts of interest can arise if analysts employed by firms managing the securities offering are at risk of being under pressure to present a positive view of the issuer. During the investor education and price-formation phase, there is a risk that these "connected" analysts may produce conflicted research and conflicts can also be present during the allocation of securities. IOSCO considers that 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 related to the capital raising. These issues can damage investor confidence and the effectiveness of the capital markets as route for issuers to raise finance.

The 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 Guidance to enable national regulators to tailor their implementation in accordance with the specific risks of their jurisdiction.

The Guidance will not be binding, but IOSCO encourages its members to consider the proposals carefully in the context of their legal and regulatory frameworks. IOSCO now plans to examine whether similar issues arise in the debt capital raising process across different jurisdictions and whether any regulatory response is needed.

View the Guidance.

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