In its multi-firm review on Market soundings in UK equity capital markets , the FCA examines how investment banks conduct market soundings in equity capital market (ECM) transactions, and whether current practices support well-functioning, orderly and transparent markets. The review focuses primarily on wholesale banks acting as disclosing market participants (DMPs) in transactions such as accelerated bookbuilds (ABBs), rights issues, IPOs and convertible issuances. The FCA’s analysis considers both the operational conduct of market soundings and their impact on market quality, including liquidity, spreads and price behaviour.
Background
Market soundings are a key component of ECM execution in the UK. They enable banks to assess investor demand before formally launching a transaction, supporting price discovery and efficient allocation. These activities are governed by Article 11 of the UK Market Abuse Regulation (UK MAR), which permits the disclosure of inside information during soundings where appropriate safeguards are in place.
Scope of the FCA Review
The FCA analysed ECM transactions conducted between 2023 and 2025, focusing on large, liquid UK-listed issuers, particularly within the FTSE 100 and FTSE 250. The review covered:
- Accelerated bookbuilds (primary and secondary)
- Rights issues
- Convertible bonds
- Selected IPO-related activity
Data sources included:
- Order book and transaction reporting data
- Internal bank market sounding records
- Feedback from market participants
Key Findings
- Extent and Structure of Market Soundings
Market soundings are widely used across ECM transactions and typically involve multiple banks coordinating outreach to investors.
- On average, over 30 investors are contacted per transaction
- Larger placements involve broader outreach
This reflects established practice designed to ensure effective distribution and investor coverage.
- Execution Timing and Characteristics
The duration of transactions varies by type:
- Secondary ABBs: typically completed within one trading day
- Primary issuances: usually take 2–3 trading days
- More complex deals may take slightly longer
Timing differences are mainly driven by transaction complexity, investor analysis requirements, and coordination across syndicates.
- Investor Selection and Governance
Investor selection is based on:
- Existing shareholdings
- Historical participation
- Investor appetite and liquidity profile
- Issuer input
The FCA observed strong collaboration between issuers and syndicate banks. However, it emphasised the need for:
- Clear governance over target lists
- Consistent compliance oversight
- Proper documentation of selection decisions
- Transactions Not Proceeding
Some soundings did not result in live transactions due to:
- Insufficient demand
- Market volatility
- Strategic changes by issuers
The FCA considers this a positive outcome, highlighting the role of soundings in risk management and decision-making.
- Compliance and Control Frameworks
The FCA found generally robust control environments across firms, including:
- Active involvement of legal and compliance teams
- Regular internal audits of sounding activity
Issues identified were minor and related mainly to:
- Record-keeping inconsistencies
- Documentation gaps
Importantly, the FCA found no evidence of systemic failures or improper disclosure of inside information.
Market Impact Assessment
- Trading Activity and Liquidity
During market sounding periods:
- Trading volumes declined moderately (~13%)
- Effects were more visible in some FTSE 100 transactions
However:
- Impacts were not disruptive
- Liquidity remained adequate
Overall, soundings did not impair market functioning.
- Spreads and Market Quality
The FCA assessed effective and quoted spreads and found:
- Slight increase in effective spreads (~3%)
- Minor narrowing in quoted spreads (~4%)
- No meaningful deterioration in liquidity
Conclusion: market soundings do not materially affect trading conditions.
- Price Impact and Stability
Across the sample:
- No significant price distortions were observed
- Price movements were consistent with comparable benchmarks
- Market depth remained stable
The FCA concluded that market soundings do not undermine price formation or market stability.
FCA Observations
The FCA reinforces that market integrity remains paramount. Firms are expected to:
- Safeguard inside information
- Maintain orderly and transparent markets
- Apply controls proportionately and consistently
- Ensure robust record-keeping, particularly around investor outreach and compliance involvement
Implications for Banks
Wholesale banks should:
- Strengthen governance over market sounding processes
- Standardise investor selection and approvals
- Enhance compliance integration and oversight
- Maintain strong record-keeping and audit trails
Operational discipline remains critical, including consistent investor communication and adherence to UK MAR requirements. Overall, the FCA finds that market soundings are functioning effectively, with no systemic concerns identified. However, firms are expected to continue improving governance and compliance practices.
How Complyport Can Help
- Regulatory and Compliance Support:Ongoing advisory services to help firms meet FCA expectations and manage regulatory change.
- Tailored Training:Firm-specific training covering market conduct, suitability, governance,Consumer Duty and wider FCA requirements to enhance competence and compliance culture.
- Specialist Advisory Services:Experienced consultants provide practical, commercially focused guidance on compliance frameworks, supervisory engagement, and strategic regulatory planning.
Contact Us
To discuss how the FCA’s findings may impact your business, speak to one of our experts.
Alternatively, explore our Virtual Compliance Assistant: https://vica.chat
