Equity underwriting
Start date: 10 June 2010
End date: 27 January 2011
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Purpose of the study
The objective of the market study was to understand the way in which the equity underwriting market works and to assess whether there is potential for improving the way that it functions. We have considered how underwriting services are purchased, how they are provided, and how the regulatory environment affects the provision of these services.
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Findings
The key findings from the report are the following:
- There has been a significant increase in fees paid to investment banks since the onset of the financial crisis in 2007. FTSE 350 companies raised an estimated £50 billion of equity capital in the UK in 2009, paying around £1.4 billion in fees, with average fees rising to more than three per cent in 2009 from around two to 2.5 per cent in the period from 2003 to 2007.
- Companies are generally not focused on the cost of equity underwriting services, instead prioritising speed, confidentiality and a successful 'take-up'. Some may also lack regular experience of raising equity capital which makes it difficult to hold investment banks to account on costs. While institutional shareholders have expressed concerns about prices, they have yet to put sufficient pressure on companies to reduce the fees paid.
- We have identified a number of options which would enable company boards and institutional shareholders to drive greater competition for themselves, which we believe is the most effective and efficient way forward.
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Related documents
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Actions following the market study
In the light of our findings, we decided that a Market Investigation Reference (MIR) would not be appropriate in this instance.
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Background
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Contacts
Team leader: Jon Riley (020 7211 8143 / jon.riley@oft.gsi.gov.uk)
Project director: Claire Hart (020 7211 8782 / claire.hart@oft.gsi.gov.uk)
Senior responsible officer: Sonya Branch (020 7211 8707 / sonya.branch@oft.gsi.gov.uk)
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Media enquiries
Any media enquiries should be directed to a member of our Press Office.
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