A new ASIC report has found “room for improvement” in the way prospectuses are prepared for initial public offerings (IPOs).
Report 540: Investors in initial public offerings assesses ASIC's own role in the regulation of IPOs. It follows a previous ASIC report that found "misleading and deceptive" conduct in the preparation of some IPOs.
“The findings from our discussions with institutional investors, and the market research, have improved our understanding of how investors participate in IPOs,” the report said.
While the findings showed "ASIC’s regulation of IPOs" to be "largely sound", an ASIC statement said there remained “scope for improvement in the usability and credibility of these documents”.
Though there were certain differences between institutional and retail investors in their approach to investing in IPOs, the prospectus was a pivotal document across both groups in their consideration.
However, institutional investors were likely to seek other information about the IPO, while retail investors found the document "challenging".
“We will therefore increase our monitoring of the wide variety of sources of information available to retail investors about IPOs,” the ASIC document stated, including “investment newsletters, magazines and subscription services dedicated to investing”.
Management of the IPO issuer was also found to be a concern for both institutional and retail investors, with institutional investors finding direct access to management important and retail investors needing more information on the management team.
In response, ASIC’s report said, “We propose to explore how access to the issuer’s management could be improved for both retail and institutional investors … This may include recording roadshows and making them available online.
“We also intend to engage with companies on the need to provide retail investors with full and frank disclosure in the prospectus about the management team.”
Perceptions across both groups of the prospectus as a marketing document also led investors to consider analysis from ‘independent’ sources, such as financial media.
On the other hand, “retail investors intended to view promotional content on IPOs, provided by some investment circulars or newsletters, as ‘information’ rather than advertising”.
ASIC will make efforts to more closely monitor online platforms such as social media for such marketing material.
The full report is available on ASIC’s website.