THE Financial Services Commision (FSC) has issued a revised schedule of guidelines for market participants which replaces one issued in February of this year and which saw brokers objecting to its new requirements.

The March publication, the FSC states, is the product of wide stakeholder consultation, meaning that it has further engaged the broker community since the initial publication.

The revised guidelines seek to prevent what the commission describes as market conditioning and introduces measures that will increase the pool of shares available to the general public in an initial public offering.

The revised guidelines state that the pool for the general public (non-reserve group of investors) should not be less than 40 per cent of public offers.

For public offerings (PO) of securities greater than $2 billion, the issuer may apply to the FSC in writing for approval of an exception.

Meanwhile, all pools for shares in a PO should be at the same price except for pools for employees and associated persons of the issuer, as described in section three of the Securities Act.

The FSC insists that a lockup period of three months will apply to any persons participating at a preferential price which means that the shares cannot be sold in the first week after listing.

The FSC further insists in the revised guideline that there should be no reserve pool for the lead broker(s) or its clients. However, it is noted, if the issuer is a broker, the broker can create a pool for its clients, employees, and associated persons.

Broker fees

Notably, a broker may participate as a key/strategic partner in a public offering. Also, an issuer may decide to reserve shares in lieu of broker fees, but then the agreement disclosing full particulars of the broker fee arrangement should be sent to the FSC with the registration document and the prospectus. Additionally, the particulars of the agreement must be included in the prospectus.

The FSC adds that the basis of allotment of shares should be “sufficiently detailed that prospective investors can understand the methodology that will be used to allocate the offered shares.

The commission states, “In the event of an oversubscription in the reserve pool, the oversubscribed amount cannot be transferred from the general pool until applications in the general pool are satisfied.”

Market conditioning

The commission said it has been forced to firmly address practices which are facilitating market conditioning. It states, “There is a concern that some aspects of the conduct of market participants may pose risks to the integrity of the capital markets more generally, and to the public offer process specifically. These concerns revolve around (but are not necessarily limited to) the risk of ‘market conditioning’.”

It is noted in the revised publication, “Like other securities regulators around the world, the FSC has found it necessary to impose restrictions on pronouncements regarding public offers and the potential issuers in order to avoid any undue conditioning of the market.”

The restrictions cover the three stages of the PO registration process and are explained in the rest of these guidelines. First is the pre-FSC registration period which begins when a prospective issuer has executed an agreement with a broker pertaining to conducting a PO, and ends when the issuer or one of its agents has submitted a prospectus to the FSC.

At this stage, the issuer, the arranger and other agents of the issuer including other licensees should comply with certain conditions: The entities should not reveal details such as the price consideration, size, and purpose.

Disclosures in relation to the price of an imminent offer should be stated in the form of a range. There should also be no public statements or discussions by the issuer’s executives, the arranger or other agents of the issuer about a potential public offer.

The FSC said that digital or traditional dissemination to the public of any statements regarding the issuer’s earnings, growth, valuation and prospects is strictly prohibited.

Similarly, no information or forecasts on the growth or performance of the issuer’s industry should be shared.

The FSC states, “There shall be no discussions with the media or with analysts pertaining to the PO, business strategy, financial performance and outlook.”

One exception is given for discussions with the arranger and the underwriter in connection with the due diligence process or pursuant to a non-disclosure agreement.

The aim of these amendments is to ensure that any disclosure concerning POs and the potential issuer is an accurate and fair presentation of the risks as well as the returns and not deemed as attempting to condition the market.

Also communications must not be deemed as an invitation or solicitation of offers to buy unregistered securities and hence a possible breach of Section 26 of the Securities Act, 1993.

Exemption

The FSC says it will not treat the following as facilitating market conditioning: any disclosures, including projections and performance, that are the direct result of the issuer complying with its regulatory responsibilities whether in respect of the Jamaica Stock Exchange (JSE), FSC or otherwise, and disclosures to its shareholders.

Excluded also are promotional activities, advertisements and disclosures that are made in the customary form and manner which means the issuer has previously released information of a similar type in the ordinary course of business and do not contain any projections of the issuer’s performance.

Additionally, the content, timing and manner of the disclosure should not suggest a selling effort of any securities, but should be consistent with similar past releases.

The disclosure should not include any information which is not a part of the prospectus information and is not price-sensitive or expected to influence the price; nor should it include any investment recommendations “save and except those undertaken during the regular course of business and not relating to the subject of the proposed security to be offered,” the FSC outlines.

The FSC is inviting comments on the revised paper.