Capital Markets

Investment Research Review

In July, Rachel Kent published the UK investment Research Review which explored the investment research environment in the UK and looked to identify and address any issues relating to coverage and scope, particularly of small-to-mid-cap companies, as part of the wider discussion about how to attract and retain growth companies in the UK.

The report made the following recommendations:

Introduce a Research Platform to help generate research.
Allow additional optionality for paying for investment research.
Allow greater access to investment research for retail investors.
Involvement of academic institutions and bursaries in the provision of investment research.

Support issuer-sponsored research by implementing a Code of Conduct.
Clarify aspects of the UK regulatory regime for investment research and consider introducing a bespoke regime.
Review the rules relating to investment research in the context of IPOs.

The IA continues to engage regularly with members, the Investment Research Review team and other key stakeholders as they take this work forward. The IA has produced a position paper setting out that the IA is supportive in principal of optional rebundling, as well as key aspects of the framework which would be needed to make optional rebundling research payments viable, and has been socialising this position with stakeholders.

Development of Consolidated Tapes

The IA submitted its response to FCA consultation paper (CP) 23/15 The Framework for a UK Consolidated Tape in September. Whilst this CP focused on developing a CT for bonds, there were many overarching themes within the CP which will also be relevant to a CT developed for equities and ETFs. The CP

Further information:

Hugo Gordon
Senior Policy Adviser
hugo.gordon@theia.org

Anika Schaffter
Trainee
anika.schaffter@theia.org

IA website hub page can be found here.

also included a Discussion Chapter with a number of targeted questions relating to developing a CT for the UK Equity/ETF market in which members of this CP actively fed into.

The IA is now awaiting the FCA’s upcoming publication of a Policy Statement setting out the proposed framework for a consolidated tape for fixed income and continues to push for a CT for equities/ETFs.

FCA: Review of Competition Concerns in Wholesale Market Data

At the end of August, the FCA published an Update Report on their Wholesale Data Market Study. This study is a part of their wider work on wholesale data which included a trades data review and the proposals to introduce a consolidated tape in the UK. At the time the IA expressed strong concerns about competition issues in wholesale data markets, including high costs, a lack of transparency and restrictive licensing conditions.

Based on the responses received to their study the FCA has identified the following emerging themes and issues:

Benchmarks

They estimate that majority of aggregate UK revenues in the market is accounted for by three larger providers.
Analysis shows concentrated markets and limited switching by benchmark users.
This market power may enable some benchmark administrators to impose commercial practices resulting in higher costs for benchmark users and further weaken competitive pressures.

Credit ratings data

92% of revenue from UK credit rating agency are from the ‘Big Three’ credit rating agencies (CRA) despite a number of smaller firms entering and expanding into the market.

Further information:

Hugo Gordon
Senior Policy Adviser
hugo.gordon@theia.org

IA website hub page can be found here.

While CRAs are required to publish data for free under UK law, this varies across jurisdictions and many data users do not utilise free data sources due to the perceived quality of data, cost of acquiring manually and uncertainty about the terms of use due to lack of licence agreement.
In response to the survey, data users emphasized a lack of transparency on prices for credit ratings data, with concerns this has led to price discrimination and limited competition.

Market Data Vendors services

There are a small number of larger MDVs followed by a long tail of smaller specialised providers. There have been no major entrants in the markets and exit has mainly occurred due to M&A. However, it is evident that existing firms are entering new market segment with new services and products.
Most buyers are sophisticated users, however the majority of demand-side respondents reported they have little or no bargaining power when negotiating with the largest vendors.

Well-established and large MDVs hold market power resulting from switching costs and other frictions in the switching process.

The IA responded to the Update Report, reiterating the concerns previously raised by the industry and stating that we welcome further exploration and analysis of the issues raised and await the final report in early 2024. The FCA will issue a final report by March of next year, in which they make a final decision as to whether to refer to the CMA, take alternative actions, or take no action.

New Public Offers and Admissions to Trading Regime

As part of its wider work on increasing the competitiveness and attractiveness of the UK Listings environment, the FCA over the summer published a series of engagement papers relating to their development of a new Public Offers and Admissions to Trading Regime as they looked to take forward previous proposals recommended by the Wholesale Markets Review and Prospectus Review. These papers focused on:

Further information:

Hugo Gordon
Senior Policy Adviser
hugo.gordon@theia.org

Anika Schaffter
Trainee
anika.schaffter@theia.org

IA website hub page can be found here.

Whether or how to set prospectus requirements for companies seeking admission of their
securities to trading on regulated markets;
Whether or not to set prospectus requirements on issuers raising further capital on UK regulated
markets;
How issuers may include forward-looking information in prospectuses;
Prospectus requirements for non-equity securities;
How to approach setting prospectus requirements for issuers seeking to admit securities to junior
markets; and
What rules should be set for firms that choose to operate a ‘public offer platform’ to allow
companies to raise capital from investors without being admitted to a public market.

These papers form an initial stage in the development of specific rules proposals on which the FCA plan to consult next year.

The IA submitted a response in which we set out views on prospectus requirements.

HM Treasury also recently published a Statutory Instrument setting out the framework for the new UK prospectus regime, including:

Creating a general prohibition on public offers of securities, followed by a series of exceptions from this prohibition.
Establishing a new regime for securities ‘admitted to trading’ on a regulated market or multilateral trading facility.
Creating a new regulated activity of operating an electronic system for public offers of certain securities.

This however will not come into force until the FCA has had further time to opine on specific rules.

A Review of the UK Transparency Regime for non-equity instruments

The FCA are expected to publish their long

Further information:

Hugo Gordon
Senior Policy Adviser
hugo.gordon@theia.org

Anika Schaffter
Trainee
anika.schaffter@theia.org

IA website hub page can be found here.

awaited consultation on the review of the transparency regime for non-equity instruments on 19 December. A major focus of this consultation is expected to be an overhaul of the current deferrals regime for bonds.

Ahead of this publication the IA’s Deferrals Working Group has met with the FCA to discuss what the buyside considers to be an optimal deferrals regime for both volume and price. To date IA members have suggesed thatthe FCA consider a two-week deferral period for both price and volume would be of benefit in most instances. We understand that for some block trades a four-week deferral period is needed and in such instances details should be published on an aggregate basis.

The IA continues to engage with both the FCA and the sell-side on this topic.

Private Markets

Recent discussion at the Private Markets Committee have focused heavily on the July Mansion House speech, which places the investment management industry front and

centre of proposals to inject growth into the economy and which in particular looks to increase the allocation of assets under management into unlisted equities.

The IA Private Markets Committee is currently in the process of finalising an educational document which builds on previous pieces pulled together by the IA as part of our engagement work with policy makers, regulators and other key stakeholders. In the new document we will look to set out key

asks for policy makers and other stakeholders in order to drive positive structural changes within the market, including:

Unlocking of pension capital;
Driving infrastructure and Net Zero investment;
The development of new structures (and expansion of existing ones such as the Long-Term Asset Fund) in order to unlock investment in unlisted and illiquid assets.

Further information:

Hugo Gordon
Senior Policy Adviser
hugo.gordon@theia.org

IA website hub page can be found here.