61/10    10 June 2010

The OFT today announced plans to undertake a market study into equity underwriting and associated services, and sought views on its scope.

In 2009, companies raised an estimated £70 billion of equity capital in the UK, paying an estimated £2 billion in fees for equity underwriting and associated services. Initial discussions have confirmed that there is some dissatisfaction with these services among corporate users of the market.

The OFT proposes that the market study, which will commence this summer, should take a focused look at rights issues and other types of equity-raising by the 350 largest UK public companies, to consider whether users' concerns are justified. It intends to assess:

• How underwriting and related services are provided, including the level of competition for the work and how these different services such as advice, arranging the issue and the actual underwriting are sold. 
• How underwriting services are purchased, including the information available to buyers and the incentives on them.
• How the regulatory environment affects the provision of these services.

The OFT is asking for views on the proposed scope of the study, such as whether to include aspects of capital-raising by companies whose securities are traded on the Alternative Investment Market (AIM) or initial public offerings (IPOs).

Clive Maxwell, OFT Senior Director of Services, said:

'Economic growth and productivity rely on companies being able to raise capital efficiently for investment. We plan to study the efficiency of the equity underwriting market and identify any areas for improvement. Our study will also help us to advise the Government in its wider thinking about wholesale financial markets.'

The OFT will discuss these issues with investment banks and other providers of equity underwriting services, large corporate businesses, the Government and trade bodies. Any interested parties can submit their views on the scope of the study in writing by 9th July 2010 to equityunderwriting@oft.gsi.gov.uk or Equity Underwriting Market Study, Fourth Floor, Office of Fair Trading, Fleetbank House, 2-6 Salisbury Square, London EC4Y 8JX.
 
NOTES

1. A document outlining the proposed scope of the market study and Q&A can be found on the Equity underwriting market study page.
2. OFT Chairman Phillip Collins made a speech to Cass Business School on making financial markets work well for consumers in spring 2010 in which he outlined the organisation's initial thinking on investment banking.
3. Equity underwriting has been considered previously by the competition authorities in the UK. In 1999, the Monopolies and Mergers Commission published a report on underwriting services for share offers. This followed three reports on equity underwriting which were published by the OFT in the mid 1990s.
4. OFT market studies are carried out under section 5 of the Enterprise  Act 2002 (EA02) which allows a market-wide consideration of both competition and consumer issues.
5. Market studies involve an analysis of a particular market with the aim of identifying and addressing any aspects of market failure from competition issues to consumer detriment and the effect of government regulations. Possible results of market studies include enforcement action by the OFT; a reference of the market to the Competition Commission; recommendations for changes in laws and regulations; recommendations to regulators, self-regulatory bodies and others to consider changes to their rules; campaigns to promote consumer education and awareness; or a clean bill of health.