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Corporate Finance
OFT consults on proposed scope of market study into equity underwriting
On 10 June 2010, the Office of Fair Trading announced that it plans to undertake a market study into equity underwriting and associated services. The OFT is currently consulting on the scope of the market study.
The OFT announcement follows recent informal discussions with corporate users of equity underwriting and associated services. The OFT has indicated that the feedback received has confirmed some dissatisfaction with aspects of these services.
At present, the OFT is proposing that the market study focuses on rights issues and other types of equity-raising by large UK public companies, typically those in the FTSE 350. The OFT is also considering whether to look at capital-raising by AIM companies and IPOs.
The OFT intends to assess the following key areas:
- How underwriting and related services are provided - this includes whether there is competition at the time advisers and underwriters are appointed and how they are remunerated for the work they perform. It also includes how different services - such as advice, arranging the issue and the actual underwriting - are sold.
- How underwriting services are purchased - this includes looking at the reasons why companies choose to raise equity capital and the options for doing so. It also includes looking at the information and advice available to buyers of underwriting services and the incentives on them when they take decisions.
- How the regulatory environment affects the provision of these services - this includes looking at the rules that govern the role of professional advisers and other firms and whether they facilitate or hinder competition.
Comments on the scope of the market study should be submitted to the OFT by 9 July 2010. It is envisaged that the market study will be formally launched in summer 2010.
Possible outcomes of the market study could include (i) enforcement action by the OFT for breaches of competition law, (ii) a reference to the Competition Commission for a full market investigation, or (iii) recommendations for changes to applicable laws or regulations or for voluntary action by market participants.
View the OFT scoping paper (4 page pdf).
View the OFT press release (web page).
30 June 2010