The role of regulation in the markets is constantly evolving and so it’s important for lawyers to keep on top of changes announced by the Financial Conduct Authority and AIM Regulation.
Equity capital markets (ECM) concerns the issue and/or sale of equity securities in public companies, which are traded on stock exchanges. ECM typically includes initial public offerings, dual listing on two or more stock exchanges and secondary fundraising.
What does a typical transaction in capital markets law look like?
One of the main types of transaction I am involved in is the initial flotation of a company on a stock exchange – this is usually either the Main Market or AIM, which are both operated by the London Stock Exchange. A flotation is a long-term project with a large financial and time commitment from the company. Often, a pre-float restructuring is needed to create a single class of share and/or a new ‘TopCo’ (an entity where equity is held) is formed specifically for the IPO (initial public offering) with a share-for-share exchange agreement put into place with the existing shareholders.
Lots of information about the company must be collated and the financial history of the company reported to provide investors with the information they need in order to decide whether to invest. Typically, we will staff an IPO with one partner, two associates and a trainee. Lawyers from specialist departments, such as employment, commercial, intellectual property, real estate and corporate tax, are also heavily relied upon.
Once a company is listed, they will often need to raise money through fresh issues of shares: this is referred to as a secondary fundraising. Some private placements can be executed very quickly, although open offers/rights issues can be more complex. Finally, capital market lawyers often receive discrete questions around corporate governance, disclosure of inside information and dealings with – or on behalf of – activist shareholders who may wish a company to change its management or focus.
Quoted companies can list their shares on more than one stock exchange, so another project that solicitors in this area work on is dual listing. This can be very complicated as you have to ensure the listed client companies comply with the rules and regulations for each regime.
During the run-up to impact or a fundraising, working longer hours is often required. Usually, the longest night will be at the pricing stage, where all the final numbers need to go into an offering document before the market opens the following day. However, when we’re not working on a live IPO or secondary fundraising, the hours are reasonable.
What new developments in capital markets should trainees be aware of?
A number of tech providers have sought to streamline the drafting and verification process – with some success. They need a flurry of IPOs to help prove the concept, but this is an area that is certainly ripe with innovation.
The role of regulation in the markets is constantly evolving and so it’s important for lawyers to keep on top of changes announced by the Financial Conduct Authority and AIM Regulation. There is a fundamental concern around the availability of information in an IPO process and, while steps have been taken over the past couple of years to address this, there will undoubtedly be further steps to take in the future.
What will a trainee in a capital markets department do?
This is a great area for trainees to get involved in as they can take responsibility for certain areas of work and run with it throughout the project. An example of this is verification (the fact-checking of the information used for marketing investments).
A trainee can find themselves liaising with the most senior members of the client’s management and with the bank’s solicitors. Trainees should never underestimate the value of the contacts they make at client companies and at investment banks at this early stage. Many of my best client relationships to date were formed when I was a trainee.
What skills do capital markets lawyers need to do their job?
- A methodical mind, with a strong attention to detail and creativity.
- A head for numbers – you will be verifying financial data and number-crunching spreadsheets and financial statements.
- People skills – juniors will be talking, and explaining concepts to, experienced business people.
Types of law practiced
- European Union legislation.
SEBASTIAN ORTON is a partner in the corporate department of PENNINGTONS MANCHES COOPER LLP. He graduated with a degree in law from the University of Warwick in 1999.