Market soundings at corporate finance firms

In some instances firms had contacted a ‘relatively large’ number of market sounding recipients (MSRs) without a process for considering the appropriateness or the number of recipients contacted. An example of good practice was where a senior employee or relevant committee approved the initial proposed list of MSRs.  This ensured that consideration was given as to why a potential investor should be included on the list together with clear justification for sharing the inside information.

Market Watch Issue No. 58 previously confirmed that investors have adopted different models for receiving market soundings from a disclosing market participant (DMP), with some choosing to appoint "gatekeepers" or front-office teams as a first point of contact who then decide whether to accept a wall-crossing. The FCA identified examples of DMPs sharing information with individuals at the MSR via email and the list of recipients on the email chain expanding without obvious control over who was added and whether they had been wall crossed by the gatekeeper. This creates the risk of unlawfully disclosing inside information during a market sounding. The intent of the market soundings regime is to protect against any allegation of unlawful disclosure of inside information where the market soundings regime is correctly followed.

Once an MSR agrees to receive a market sounding, the DMP will share the same deal specific information with all potential investors. Best practice involves the DMP using an approved script for all market soundings but the FCA found varying practices for identifying and agreeing the deal-specific information to share with the MSR.    

The FCA observed a practice whereby a broker (A), appointed by an issuer to undertake market soundings for a potential transaction, asks another broker (B) to market sound its own investor contacts, sometimes without the issuer knowing that A had involved B. The protection afforded by the market soundings regime is only available to the issuer or a third party acting on behalf of the issuer - so broker B in this scenario would not benefit from the MAR safe harbour.