Price Stabilisation Rules FSA CP40 - ACT Response

Mr Andy Murfin
Markets and Exchanges Division
FSA

10 April 2000

Dear Mr Murfin

CP40 - THE PRICE STABILISING RULES

Following various conversations between yourselves and representatives of the Association, we are writing to confirm our comments relating to the section of CP40 dealing with market disclosure and customer disclosure.

We have seen IPMA's response to CP40 dated 24 March and support the section of that response that deals with accounting to the issuer. We feel strongly that stabilisation is a benefit to issuers and we have been unable to identify any circumstances in which issuers have been disadvantaged by stabilisation or the way in which it has been carried out. We accept that there may have been cases in which issuers have been disadvantaged and have not been aware of the fact. Some issuers may have been reluctant to ask for information from lead managers or may not have been properly advised of their right to do so. However we do not support a regulatory approach to accounting to issuers since we believe that there is no benefit to be gained from regulating something that currently works well, but there could be some drawbacks (see below).

In response to the questions in the Consultation Paper that relate to disclosure, we have the following comments:

Q2.5.

We support the mandatory disclosure in the prospectus of any Green Shoe option since this could possibly be used by banks to increase profits at the expense of the issuer. Our view is that transparency deters abuse. We are happy to undertake to work with IPMA and other bodies to ensure that issuers agree Green Shoe arrangements with lead managers and that full information is set out in prospectuses.

Q2.6.

We support the idea of a Factsheet on stabilisation. It would certainly be beneficial for issuers to be better educated about stabilisation since for most of them issuing securities is not a regular occurrence. We have recently cooperated with the Bank of England in conjunction with a number of other bodies on a similar initiative (Guidance on Share Issuing Good Practice for Listed Companies published by the Bank in October 1999). We would be happy to work with the FSA and other bodies to produce a Factsheet on stabilisation which could serve an educational purpose as well as providing disclosure to the market.

Mention in an offer document of the existence of the FSA Factsheet would also serve to alert issuers to the matter.

Q2.7 and 2.8.

Disclosure of stabilisation activity to issuers is important. However we believe that this can be left to the market and that regulatory intervention is not required. Our reasons are as follows:

1. Mandatory disclosure of a Green Shoe option and of the FSA Factsheet should be a sufficient prompt to issuers to think about what information they require.
2. Issuers have the right and the opportunity to obtain whatever information on stabilisation they may require by negotiation with the lead manager when they award a mandate. It must be better for issuers to have the option to have information, in the form preferred, or not to have it, rather than have information given to them in a prescribed format whether they want it or not.
3. Some issuers take the view that stabilisation is something for the lead manager to handle and that, as long as the issue is seen to be successful and the issuer is not disadvantaged, they would rather not know about it. We do not know whether this is a widespread view or not, but it certainly exists.
4. We would be very concerned if excessively prescriptive information requirements caused reluctance in lead managers to undertake stabilisation or if the costs of providing the information were passed on to issuers.
5. Regulation might expose issuers to obligations that they would prefer not to have.

We hope that these comments are helpful. If you have any questions please direct them to Caroline Bradley, Technical Officer by e-mail on cbradley@treasurers.co.uk' or phone 020 7213 07381.

Yours sincerely

Philip Gillett, Chairman
Technical Committee

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