A string of troubled initial public offerings (IPO) in Europe has pushed Bank of America Merrill Lynch
The investment bank, the second-biggest equity fundraiser globally in the first half of the year and the fourth in Europe, said the suggestions were aimed at increasing disclosure and transparency in the market.
There has been a lot of disappointment ... We are suggesting that all of us involved in IPOs have to do their part to contribute to improving the process, Craig Coben, the bank's the bank's head of equity capital markets for Europe, Middle East and Africa, told Reuters.
Distrust has seeped into the process ... we need to move beyond finger-pointing and find ways to make the process better.
Among Bank of America's suggestions, sent out in a document to clients late on Monday, are earlier and more regular meetings between institutional investors and company management.
It also called for full disclosure of fees paid to underwriters and advisers, and greater transparency on how performance fees are calculated.
More than 20 European IPOs have been pulled this year amid volatile equity markets and investors, who have lost money on almost all floats which did get done, increasingly lack the conviction to take a punt on new listings.
The ideas put forward by the bank address many of the issues raised by U.S.-based fund manager BlackRock
We should be comfortable with disclosing who is getting paid what and disclosure of fees will restore some trust. People want to know what fees are being paid to banks and advisors and on what basis those fees are being paid, said Coben.
An investigation into equity underwriting fees by Britain's Office of Fair Trading earlier this year concluded that there was insufficient price competition in the market, although its probe excluded the IPO process.
The OFT also refrained from stepping into the market, saying it was up to companies and institutional shareholders to drive competition.
Differences in opinion between selling shareholders and potential investors about what a company is worth have been a particular sticking point on many floats this year.
The bank pointed out companies should be aware they may have to float at a discount to listed peers, the extent of which will be influenced by factors such as market conditions, the firm's size and specific sector or geopolitical risks.
Other proposals made by the bank included allowing independent analysts, from banks not involved in an IPO, access to information on the company to provide a greater balance of research for investors.
Large book running syndicates, long a point of contention in the market, need to be better managed to make sure the leading banks on a deal take greater ownership and responsibility for its success, the proposal said.
Where independent advisers are involved in a float, there should be greater clarity on their role, it added.
These advisers need to ensure that they give no cause to be perceived by the market as, and do not inadvertently act as, a force for conflict in a sensitive process, the document states.
Coben said investors had so far responded positively to the suggestions.
People will agree with some of the points and others may be points of debate. We want to stimulate a more open and constructive debate ... to date we really haven't had an open dialogue among the parties involved. All of us have a stake in making this an effective process.
(Additional reporting by Sinead Cruise; Editing by David Cowell)