It’s not a full blown investigation (yet) but…
The Office of Fair Trading has confirmed on Thursday morning that it plans to undertake a “market study” into equity underwriting and associated services.
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.
Here’s what a market a study by the UK competition authority entails:
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 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.ukor Equity Underwriting Market Study, Fourth Floor, Office of Fair Trading, Fleetbank House, 2-6 Salisbury Square, London EC4Y 8JX.
Whether this study proves to be any more succesful than previous investigations into the equity underwriting gravy train remains to be seen.
But the fact that underwriting fees on the £70bn raised in 2009 amounted to just under 2.9 per cent (according to the OFT’s own calculations) doesn’t smack of cartel activity.
Related link:
OFT Probe Is High Stakes For City Big Guns – Mark Kleinman